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Use commercial bank and Federal Reserve Bank balance sheets to demonstrate the immediate effect of each of the following transactions on commercial bank reserves. Assume that the initial reserve ratio is 20 percent. Fill in the new balances in the column in the balance sheets that correspond with each of the following transactions. Consider each transaction separately, not cumulatively. a. Federal Reserve Banks purchase $2 billion worth of securities from banks. b. Commercial banks borrow $1 billion from Federal Reserve Banks at the discount rate. c. The Fed reduces the reserve ratio from 20 percent to 19 percent. Instructions: Enter your answers as whole numbers in the gray-shaded cells of both tables below.

Consolidated Balance Sheet: All Commercial Bank
		A	B	C
Assets:
Reserves	$40
Securities	60
Loans	102
Liabilities and Net Worth:
Checkable deposits	200
Loans from the Federal Reserve Banks	2

Consolidated Balance Sheet: 12 Federal Reserve Banks
		A	B	C
Assets:
Securities	$283
Loans to Commercial Banks	2
Liabilities and Net Worth:
Reserves of Commercial Banks	40
Treasury Deposits	5
Federal Reserve Notes	225
Other Liabilities and Net Worth	15

d. Commercial banks increase their reserves after the Fed increases the interest rate it pays on reserves. Which of the columns above could represent this action?

Select one

Column A

Column B

Column C

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