Business
Business, 15.11.2019 21:31, theojw

Suppose the fed conducts an open market purchase by buying $10 million in treasury bonds from acme bank. sketch out the balance sheet changes that will occur as acme converts the bond sale proceeds to new loans. the initial acme bank balance sheet contains the following information: assets – reserves 30, bonds 50, and loans 50; liabilities – deposits 100 and equity 30.

2. (a) suppose the fed decides it needs to pursue an expansionary policy. assume the reserve requirement is 20 percent, and there are no excess reserves. show how the fed would increase the money supply by $2 million through open market operations.

(b) some individuals have suggested raising the required reserve ratio for banks to 100 percent:

(i) what could the money multiplier be if this change were made?

(ii) what effect would such a change have on the money supply?

(iii) how could that effect be offset (in ii above)?

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