In the tables that follow you will find consolidated balance sheets for the commercial banking system and the 12 Federal Reserve Banks. Use columns 1 through 3 to indicate how the balance sheets would read after each of transactions a to cis completed. Do not cumulate your answers; that is, analyze each transaction separately, starting in each case from the numbers provided. All accounts are in billions of dollars. a. A decline in the discount rate prompts commercial banks to borrow an additional $6 billion from the Federal Reserve Banks. Show the new balance sheet numbers in column 1 of each table. b. The Federal Reserve Banks sell $8 billion in securities to members of the public, who pay for the bonds with checks. Show the new balance sheet numbers in column 2 of each table. c. The Federal Reserve Banks buy $7 billion of securities from commercial banks. Show the new balance sheet numbers in column 3 of each table. Instructions: Enter your answers as whole numbers in both tables below. Consolidated Balance Sheet: All Commercial Banks 1 2 3 Assets: Reserves $ 33 $ 39 $ 25 $ 40 Securities $ 60 $ 60 $ 60 $ 53 Loans $ 60 $ 60 $ 60 $ 60 Liabilities and net worth: Checkable deposits $ 150 $ 150 $ 142 $ 150 Loans from the Federal Reserve Banks $ 3 $ 9 $ 3 $ 3 < Prey 3 of 6 Next > Consolidated Balance Sheet: 12 Federal Reserve Banks 1 2 3 Assets: Securities $ 60 $ 60 $ 52 $ 67 Loans to commercial banks $ 3 $ 9 $ 3 $ 3 Liabilities and net worth: Reserves of commercial banks $ 33 $ 39 $ 25 $ 39 Treasury deposits $ 3 $ 3 $ 3 $ 3 Federal Reserve Notes $ 27 $ 27 $ 27 $ 27 d. Now review each of the above three transactions, asking yourself these three questions: (1) What change, if any, took place in the money supply as a direct and immediate result of each transaction? (2) What increase or decrease in the commercial banks' reserves took place in each transaction? (3) Assuming a reserve ratio of 20 percent, what change in the money-creating potential of the commercial banking system occurred as a result of each transaction?
Transaction a:
1. The money supply decreased Tincreased
2. Reserves from $33 billion $ 39 billion.
Transaction a:
1. The money supply Idecreased
2. Reserves increased from $33 billion to $ 39 billion.
3. Money-creating potential increased | by billion.
Transaction b:
1. The money supply by billion.
2. Reserves from $33 billion to billion.
3. Money-creating potential by billion
Transaction c:
1. The money supply
2. Reserves from $33 billion to billion.
3. Money-creating potential by billion.