exercise utilizes two balance sheets, one for the Federal Reserve and one for Bank of America, a representative member of the banking system.
In January 2021, the Fed issued a statement saying it "will continue to increase its holdings of Treasury securities by at least $80 billion per month and of agency mortgage-backed securities by at least $40 billion per month."
Note that Treasury securities are also called Treasury bonds. Note too that agency mortgage-backed securities are labeled as "other bonds" in the following balan sheet of the Fed. Assuming that Bank of America is the only bank that is going to undertake these transactions with the Federal Reserve, show how the Fed's as well as Bank of America's balance sheet will change. (In practice, the Fed would buy these bonds from many banks, but for the purpose of this exercise, assume t the Fed buys both the Treasury securities and the agency mortgage-backed securities- other bonds- exclusively from Bank of America.)
Given the following balance sheet showing the Fed's initial position, suppose the Federal Reserve increases its holdings of Treasury securities by $80 billion and increases its holdings of agency mortgage-backed securities by $50 billion.
Assets
Federal Reserve Bank System (A// values in billions of dollars)
Liabilities and Shareholders' Equity
Treasury Bonds
Other bonds
8,000
2,000
Reserves
Currency
7,500
2,500
Total Assets
10,000
Total Liabilities
10,000
After the transaction is completed, show how the Fed's balance sheet will look. (You must enter six integer values, one for each balance sheet item.)
Assets
Federal Reserve Bank System (A/I values in billions of dollars)
Liabilities and Shareholders' Equity
Treasury Bonds
Other bonds
Reserves
Currency
Total Assets
Total Liabilities
