2. Assume the Fed conducts open-market operations, buying $2000 of bonds (securities) directly from individuals. The required reserve ratio is 10%. (a) Draw this on your answer sheet. Then, modify the bank balance sheet so that it reflects the changes... Assets Liabilities Total reserves Deposits $10,000 $100,000 Securities (bonds) $10,000 Loans $80,000 (b) As a result of the open market operation, what are the excess reserves now? (c) Calculate the money multiplier. Show your work. (d) Calculate the maximum potential change in money supply as a result of the Fed action. Show your work.

2. Assume the Fed conducts open-market operations, buying $2000 of bonds (securities) directly from individuals. The required reserve ratio is 10%. (a) Draw this on your answer sheet. Then, modify the bank balance sheet so that it reflects the changes... Assets Liabilities Total reserves Deposits $10,000 $100,000 Securities (bonds) $10,000 Loans $80,000 (b) As a result of the open market operation, what are the excess reserves now? (c) Calculate the money multiplier. Show your work. (d) Calculate the maximum potential change in money supply as a result of the Fed action. Show your work.

ECON MACRO

5th Edition

ISBN:9781337000529

Author:William A. McEachern

Publisher:William A. McEachern

Chapter13: Money And The Financial System

Section: Chapter Questions

Problem 2.8P

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Question

2. Assume the Fed conducts open-market operations, buying $2000 of bonds (securities) directly from individuals. The
required reserve ratio is 10%.
(a) Draw this on your answer sheet. Then, modify the bank balance sheet so that it reflects the changes...
Assets
Liabilities
Total reserves
Deposits
$10,000
$100,000
Securities (bonds)
$10,000
Loans
$80,000
(b) As a result of the open market operation, what are the excess reserves now?
(c) Calculate the money multiplier. Show your work.
(d) Calculate the maximum potential change in money supply as a result of the Fed action. Show your work.

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