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.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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6. Required and excess reserves Suppose that Walls Fergo Bank currently has $150,000 in demand deposits and $97,500 in outstanding loans. Assume the Federal Reserve has the reserve requirement set at 10%. Based on this information, complete the following table detailing Walls Fergo Bank's reserves, required reserves, and excess reserves. Reserves (Dollars) Walls Fergo Required Reserves (Dollars) Excess Reserves (Dollars)
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