Working through an open-market operation Assume that the following balance sheet portrays the state of the banking system. The banks currently have no excess reserves. Assets Liabilities and Net Worth (Billions of Dollars) Total reserves 4 Checkable deposits 20 Loans 11 Securities 5 Total 20 Total 20 What is the required reserve ratio? a. 5% b.10% c.20% d. 25% Suppose that the Federal Reserve (the “Fed”) sells $1.5 million of bonds to a bond dealer, who pays the Fed by writing a check against the funds in her checking account. What is the initial impact of this transaction? (a) The banking system's holdings of securities rise by $1.5 million, and the banking system's total reserves fall by $1.5 million. (b)Checkable deposits fall by $1.5 million, and the banking system's holdings of securities fall by $1.5 million. (c) Checkable deposits fall by $1.5 million, and the banking system's total reserves fall by $1.5 million. (d) The banking system's holdings of securities fall by $1.5 million, and the banking system's total reserves rise by $1.5 million. As a result of the Fed's sale of $1.5 million of securities, checkable deposits in the banking system can potentially(increase/decrease) by as much as __________ . This question is one question but it is divided in the parts please solve all subparts . give answer with explanation.

ECON MACRO

5th Edition

ISBN:9781337000529

Author:William A. McEachern

Publisher:William A. McEachern

Chapter14: Banking And The Money Supply

Section: Chapter Questions

Problem 2.3P

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Working through an open-market operation

Assume that the following balance sheet portrays the state of the banking system. The banks currently have no excess reserves.

Assets	Liabilities and Net Worth
(Billions of Dollars)
Total reserves	4	Checkable deposits	20
Loans	11
Securities	5
Total	20	Total	20

What is the required reserve ratio?

a. 5%

b.10%

c.20%

d. 25%

Suppose that the Federal Reserve (the “Fed”) sells $1.5 million of bonds to a bond dealer, who pays the Fed by writing a check against the funds in her checking account.

What is the initial impact of this transaction?

(a) The banking system's holdings of securities rise by $1.5 million, and the banking system's total reserves fall by $1.5 million.

(b)Checkable deposits fall by $1.5 million, and the banking system's holdings of securities fall by $1.5 million.

(d) The banking system's holdings of securities fall by $1.5 million, and the banking system's total reserves rise by $1.5 million.

As a result of the Fed's sale of $1.5 million of securities, checkable deposits in the banking system can potentially______(increase/decrease) by as much as ________________ .

This question is one question but it is divided in the parts please solve all subparts .

give answer with explanation.

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