Exhibit 19-4 Balance sheet of Tucker National Bank

-Assume all banks in the system started with the balance sheet shown in Exhibit 19-4 and the Fed makes a $1,000 open market purchase.The result would be a(n):

Question

Exhibit 19-4 Balance sheet of Tucker National Bank
 
-Assume all banks in the system started with the balance sheet shown in Exhibit 19-4 and the Fed makes a $1,000 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, allowing banks to lend more. With a reserve requirement, the money multiplier effect leads to a larger expansion of the money supply. If the reserve requirement is 20%, the money supply can expand by up to $5,000 (1,000 x 1/0.20).

Exhibit 19-4 Balance Sheet of Tucker National Bank