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4. Start with the Wednesday balance sheet for The Friendly Bank shown below (page 322 in the text). Suppose on Thursday, the Fed buys $100 in government bonds. Complete entries for Thursday and Friday, assuming everyone behaves the same way as in the text. C R Balance Sheet on Wednesday Asset Liabilities D 1280 R 680 L 600 Balance Sheet on Thursday Asset Liabilities Balance Sheet on Friday Asset Liabilities 320 680 R R D 1280 D D MB 1000 MB MB M2 1600 M2 M2

4. Start with the Wednesday balance sheet for The Friendly Bank shown below (page 322 in the text). Suppose on Thursday, the Fed buys $100 in government bonds. Complete entries for Thursday and Friday, assuming everyone behaves the same way as in the text. C R Balance Sheet on Wednesday Asset Liabilities D 1280 R 680 L 600 Balance Sheet on Thursday Asset Liabilities Balance Sheet on Friday Asset Liabilities 320 680 R R D 1280 D D MB 1000 MB MB M2 1600 M2 M2

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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322 CHAPTER 11 THE MONEY SUPPLY AND INTEREST RATES ned to ou (19) s b More Deposits In the last transaction, borrowers received $600 in cash loans from The Friendly Bank. They may spend some or all of this money, so other people receive it. Regardless, whoever ends up with the $600 doesn't want to keep all of it in cash. Let's assume again that people choose a currency-deposit ratio of 0.25. Out of $600, they keep $120 in cash and deposit $480, because 120/480 = 0.25. The deposits occur on Wednesday, raising The Friendly Bank's total deposits and reserves. The bank's balance sheet becomes R L THE FRIENDLY BANK'S BALANCE SHEET AS OF WEDNESDAY Liabilities Assets mewo The monetary aggregates are A Bank R L 680 600 008 apa bes 0082 bal und dieserb quilida WEDNESDAY с R YA023UT 40 28 BOKAJA 2X 1280YJOWBINA SHT B=C+R M=C+D C R D More Loans You can probably guess the next step: after Wednesday's increase in reserves, the bank makes more loans. Assume the bank still chooses a reserve-deposit ratio of 0.25. Because total deposits are $1280, the bank wants reserves of (0.25) ($1280) = $320. To reduce reserves to this level, the bank lends $360. These loans occur on Thursday. The bank's balance sheet becomes The monetary aggregates are D 320 960 THE FRIENDLY BANK'S BALANCE SHEET AS OF THURSDAY Assets Liabilities 320 680 B=C+R M = C + D D THURSDAY 1000 1600 1280 680 320 1280 1000 1960 1280
Transcribed Image Text:322 CHAPTER 11 THE MONEY SUPPLY AND INTEREST RATES ned to ou (19) s b More Deposits In the last transaction, borrowers received $600 in cash loans from The Friendly Bank. They may spend some or all of this money, so other people receive it. Regardless, whoever ends up with the $600 doesn't want to keep all of it in cash. Let's assume again that people choose a currency-deposit ratio of 0.25. Out of $600, they keep $120 in cash and deposit $480, because 120/480 = 0.25. The deposits occur on Wednesday, raising The Friendly Bank's total deposits and reserves. The bank's balance sheet becomes R L THE FRIENDLY BANK'S BALANCE SHEET AS OF WEDNESDAY Liabilities Assets mewo The monetary aggregates are A Bank R L 680 600 008 apa bes 0082 bal und dieserb quilida WEDNESDAY с R YA023UT 40 28 BOKAJA 2X 1280YJOWBINA SHT B=C+R M=C+D C R D More Loans You can probably guess the next step: after Wednesday's increase in reserves, the bank makes more loans. Assume the bank still chooses a reserve-deposit ratio of 0.25. Because total deposits are $1280, the bank wants reserves of (0.25) ($1280) = $320. To reduce reserves to this level, the bank lends $360. These loans occur on Thursday. The bank's balance sheet becomes The monetary aggregates are D 320 960 THE FRIENDLY BANK'S BALANCE SHEET AS OF THURSDAY Assets Liabilities 320 680 B=C+R M = C + D D THURSDAY 1000 1600 1280 680 320 1280 1000 1960 1280
4. Start with the Wednesday balance sheet for The Friendly Bank shown below (page 322 in the text). Suppose on Thursday, the Fed buys $100 in government bonds. Complete entries for Thursday and Friday, assuming everyone behaves the same way as in the text. C R D Balance Sheet on Wednesday Asset Liabilities D 1280 R 680 L 600 Balance Sheet on Thursday Asset Liabilities Balance Sheet on Friday Asset Liabilities 320 680 Ꭱ . R 1280 D D MB 1000 MB MB M2 1600 M2 M2
Transcribed Image Text:4. Start with the Wednesday balance sheet for The Friendly Bank shown below (page 322 in the text). Suppose on Thursday, the Fed buys $100 in government bonds. Complete entries for Thursday and Friday, assuming everyone behaves the same way as in the text. C R D Balance Sheet on Wednesday Asset Liabilities D 1280 R 680 L 600 Balance Sheet on Thursday Asset Liabilities Balance Sheet on Friday Asset Liabilities 320 680 Ꭱ . R 1280 D D MB 1000 MB MB M2 1600 M2 M2
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