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Assume that the following balance sheet portrays the state of the banking system. The banks currently...

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Economics

Assume that the following balance sheet portrays the state ofthe banking system. The banks currently have no excessreserves.

Assets

Liabilities and Net Worth

(Billions of Dollars)

Total reserves5Checkable deposits50
Loans25
Securities20
Total50Total50

What is the required reserve ratio?

10%

40%

5%

25%

Suppose that the Federal Reserve (the \"Fed\") sells $4 million ofbonds to a bond dealer, who pays the Fed by writing a check againstthe funds in her checking account. What is the initial impact ofthis transaction?

The banking system's holdings of securities fall by $4 million,and the banking system's total reserves rise by $4 million.

Checkable deposits fall by $4 million, and the banking system'sholdings of securities fall by $4 million.

Checkable deposits fall by $4 million, and the banking system'stotal reserves fall by $4 million.

The banking system's holdings of securities rise by $4 million,and the banking system's total reserves fall by $4 million.

As a result of the Fed's sale of $4 million of securities,checkable deposits in the banking system can potentially  by as much as   .

Answer & Explanation Solved by verified expert
4.3 Ratings (785 Votes)
A The following formula is used to calculate required reserve ratio Required reserve ratio Reserve Checkable Deposits    See Answer
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