Suppose the balance sheet for Bank ABC is as given below, where numbers are in thousands of dollars. Assume that reserves are 10 percent of deposits and that people hold no currency.
(A)Suppose the Federal Reserve sells $20,000 worth of government bonds to Joe, a private citizen, and Joe writes a check to the Fed from his checking account at Bank ABC. Show how Joe's purchase changes the balance sheet above. (
B)Is Bank ABC meeting its reserve requirements? Explain. (
C)If bonds are fixed, what has to happen to loans? Explain. (
D)What happens to the money supply in the economy as a result of Joe's purchase?

Question

Suppose the balance sheet for Bank ABC is as given below, where numbers are in thousands of dollars. Assume that reserves are 10 percent of deposits and that people hold no currency. 
 (A)Suppose the Federal Reserve sells $20,000 worth of government bonds to Joe, a private citizen, and Joe writes a check to the Fed from his checking account at Bank ABC. Show how Joe's purchase changes the balance sheet above. (
B)Is Bank ABC meeting its reserve requirements? Explain. (
C)If bonds are fixed, what has to happen to loans? Explain. (
D)What happens to the money supply in the economy as a result of Joe's purchase?

Quizplus · Accepted Answer

The Answer of Suppose the balance sheet for Bank ABC is as given below, where numbers are in thousands of dollars. Assume that reserves are 10 percent of deposits and that people hold no currency. 
 (A)Suppose the Federal Reserve sells $20,000 worth of government bonds to Joe, a private citizen, and Joe writes a check to the Fed from his checking account at Bank ABC. Show how Joe's purchase changes the balance sheet above. (
B)Is Bank ABC meeting its reserve requirements? Explain. (
C)If bonds are fixed, what has to happen to loans? Explain. (
D)What happens to the money supply in the economy as a result of Joe's purchase?

Suppose the Balance Sheet for Bank ABC Is as Given