ssume that the following balance sheet portrays the state of the banking system. The banks currently have no excess reserves. Assets (Billions of Dollars) Total reserves 10 Checkable deposits 25 5 10 25 Loans Securities Total What is the required reserve ratio? 5% 40% Liabilities and Net Worth 10% 25% Total 25 Suppose that the Federal Reserve (the "Fed") sells $3 million of bonds to a bond dealer, who pays the Fed by writing a check against the funds in her checking account. What is the initial impact of this transaction? Checkable deposits fail by $3 million, and the banking system's holdings of securities fall by $3 million. Checkable deposits fall by $3 million, and the banking system's total reserves fall by $3 million. The banking system's holdings of securities fall by $3 million, and the banking system's total reserves rise by $3 million.
ssume that the following balance sheet portrays the state of the banking system. The banks currently have no excess reserves. Assets (Billions of Dollars) Total reserves 10 Checkable deposits 25 5 10 25 Loans Securities Total What is the required reserve ratio? 5% 40% Liabilities and Net Worth 10% 25% Total 25 Suppose that the Federal Reserve (the "Fed") sells $3 million of bonds to a bond dealer, who pays the Fed by writing a check against the funds in her checking account. What is the initial impact of this transaction? Checkable deposits fail by $3 million, and the banking system's holdings of securities fall by $3 million. Checkable deposits fall by $3 million, and the banking system's total reserves fall by $3 million. The banking system's holdings of securities fall by $3 million, and the banking system's total reserves rise by $3 million.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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1st drop down options
- decrease
-increase
2nd drop down options
-7.5 million
-3 million
-5 million
-18.75 million
Note:-
Do not provide handwritten solution. Maintain accuracy and quality in your answer.
Take care of plagiarism.
Answer completely.
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Transcribed Image Text:4. Working through an open-market operation
Assume that the following balance sheet portrays the state of the banking system. The banks currently have no excess reserves.
Assets
(Billions of Dollars)
Total reserves 10 Checkable deposits 25
Loans
5
Securities
10
Total
25
What is the required reserve ratio?
5%
Liabilities and Net Worth
40%
10%
25%
Total:
25
Suppose that the Federal Reserve (the "Fed") sells $3 million of bonds to a bond dealer, who pays the Fed by writing a check against the funds in her
checking account. What is the initial impact of this transaction?
Checkable deposits fail by $3 million, and the banking system's holdings of securities fall by $3 million.
Checkable deposits fall by $3 million, and the banking system's total reserves fall by $3 million.
The banking system's holdings of securities fall by $3 million, and the banking system's total reserves rise by $3 million.
The banking system's holdings of securities rise by $3 million, and the banking system's total reserves fall by $3 million.
Transcribed Image Text:The banking system's holdings of securities rise by $3 million, and the banking system's total reserves fall by $3 million.
As a result of the Fed's sale of $3 million of securities, checkable deposits in the banking system can potentially
by as much as
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