Suppose you examine the central bank’s balance sheet and observe that since the previous day, reserves had risen by $400 million. In addition, on the asset side of the central bank’s balance sheet, securities had risen by $400 million. What activity did the central bank carry out earlier in the day to lead to these changes in the balance sheet? Do you think by carrying out this activity the central bank was aiming to increase, decrease, or maintain the size of the money supply? The central bank conducted an open market (purchase /sale) of $400 million with a commercial bank. This transaction would involve $400 million of securities being ( added to / removed from) the central bank’s balance sheet. There would be (an increase / a fall ) of $400 million in reserves to reflect the related payment ( to / by ) the commercial bank ( from / into) its reserve account. By carrying out this activity, the central bank was aiming to (increase / decrease) maintain the size of the money supply.
Suppose you examine the central bank’s
The central bank conducted an open market (purchase /sale) of $400 million with a commercial bank. This transaction would involve $400 million of securities being ( added to / removed from) the central bank’s balance sheet. There would be (an increase / a fall ) of $400 million in reserves to reflect the related payment ( to / by ) the commercial bank ( from / into) its reserve account. By carrying out this activity, the central bank was aiming to (increase / decrease) maintain the size of the money supply.
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