Suppose the Federal Reserve purchases $10,000 of Treasury bonds from you and that you deposit the $10,000 into your checking account deposit at Bank Y.Assume that Bank Y has no excess reserves at the time you make your deposit and that the required reserve ratio is 20 percent.
a.Use a T-account to show the initial effect of this transaction on Bank Y's balance sheet.
b.Suppose that Bank Y makes the maximum loan they can from the funds you deposited.Use a T-account to show the initial effect on Bank Y's balance sheet from granting the loan.Also include in this T-account the transaction from question (a.).
c.Now suppose that whoever took out the loan in question (b)writes a check for this amount and that the person receiving the check deposits it in Bank Z.Show the effect of these transactions on the balance sheet of Bank Y and Bank Z,after the check has been cleared.On the T-account for Bank Y,include the transactions from questions (a)and (b).
d.What is the maximum increase in checking account deposits that can result from your $10,000 deposit? What is the maximum increase in the money supply? Explain.

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The Answer of Suppose the Federal Reserve purchases $10,000 of Treasury bonds from you and that you deposit the $10,000 into your checking account deposit at Bank Y.Assume that Bank Y has no excess reserves at the time you make your deposit and that the required reserve ratio is 20 percent.
a.Use a T-account to show the initial effect of this transaction on Bank Y's balance sheet.
b.Suppose that Bank Y makes the maximum loan they can from the funds you deposited.Use a T-account to show the initial effect on Bank Y's balance sheet from granting the loan.Also include in this T-account the transaction from question (a.).
c.Now suppose that whoever took out the loan in question (b)writes a check for this amount and that the person receiving the check deposits it in Bank Z.Show the effect of these transactions on the balance sheet of Bank Y and Bank Z,after the check has been cleared.On the T-account for Bank Y,include the transactions from questions (a)and (b).
d.What is the maximum increase in checking account deposits that can result from your $10,000 deposit? What is the maximum increase in the money supply? Explain.

Suppose the Federal Reserve Purchases $10,000 of Treasury Bonds from You