Refer to Exhibit 13-1.Suppose that the Federal Reserve conducts open market operations by purchasing $1,000 worth of government securities from Bank A.As a result,Bank A finds itself with $1,000 in excess reserves that it lends out and those funds end up in Bank B.What dollar value goes in blanks (A)and (B),respectively?.

Question

Quizplus · Accepted Answer

The Federal Reserve's purchase of $1,000 in government securities from Bank A increases Bank A's reserves by $1,000, which it can lend out. Assuming a 10% reserve requirement, Bank A would keep $100 (10% of $1,000) as required reserves and could lend out $900, which is the excess reserve. Thus, the correct values for blanks (A) and (B) are $100 and $900, respectively.