Exhibit 19-3 Balance sheet of Tucker National Bank

-Assume all banks in the system started with balance sheets as shown in Exhibit 19-3 and the Fed made a $100,000 open market purchase.The result would be a(n):

Question

Exhibit 19-3 Balance sheet of Tucker National Bank
 
-Assume all banks in the system started with balance sheets as shown in Exhibit 19-3 and the Fed made a $100,000 open market purchase.The result would be a(n):

Quizplus · Accepted Answer

An open market purchase by the Fed increases reserves in the banking system, leading to a potential expansion of the money supply through the money multiplier effect. Assuming a reserve requirement ratio of 20% (as implied by the $100,000 purchase leading to a $500,000 expansion), the money supply can expand by a factor of 1/0.20 = 5 times the initial increase in reserves.

Exhibit 19-3 Balance Sheet of Tucker National Bank