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 transactionsa toc is 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 $2 billion from the Federal Reserve Banks. Show the new balance sheet numbers in column 1 of each table.
b. The Federal Reserve Banks sell $4 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 $3 billion of securities from commercial banks. Show the new balance sheet numbers in column 3 of each table.
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Extracted text: 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 $2 billion from the Federal Reserve Banks. Show the new balance sheet numbers in column 1 of each table. b. The Federal Reserve Banks sell $4 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 $3 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 2 Assets: Reserves 33 $ 34 2$ 30 $ 35 Securities 60 $ 60 2$ 60 $ 58 Loans 60 $ 60 %2$ 60 2$ 60 Liabilities and net worth: Checkable deposits 150 Loans from the Federal Reserve Banks Consolidated Balance Sheet: 12 Federal Reserve Banks 1 2 3 Assets: Securities $ 60 $ 60 Loans to commercial banks $ 3 2$ 3 Liabilities and net worth: Reserves of commercial banks $ 33 Treasury deposits 2$ Federal Reserve Notes $ 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 from $33 billion to 2. Reserves billion. 3. Money-creating potential by billion. Transaction b: 1. The money supply by billion. from $33 billion to 2. Reserves billion. 3. Money-creating potential by billion. Transaction c: 1. The money supply 2. Reserves from $33 billion billion. to 3. Money-creating potential by billion.