Homework Help is Here – Start Your Trial Now!
Business
Economics
Assume that the Fed purchases a security for $500,000 from FirstBank. Also assume that the reserve ratio is 0.2 (20%).FirstBank lends its excess reserves to Betty, who does her banking at SecondBank. SecondBank lends its excess reserves to Charlie, who does his banking at ThirdBank. ThirdBank lends its excess reserves to Donna, who does her banking at FourthBank.Assume a simple money creation model, with no cash drain, no time deposits, and banks desire to hold no excess reserves. How does the open market purchase affect the final T-accounts for FirstBank, SecondBank and ThirdBank? What is the total increase in deposits that results from the initial change in reserves?

Assume that the Fed purchases a security for $500,000 from FirstBank. Also assume that the reserve ratio is 0.2 (20%).FirstBank lends its excess reserves to Betty, who does her banking at SecondBank. SecondBank lends its excess reserves to Charlie, who does his banking at ThirdBank. ThirdBank lends its excess reserves to Donna, who does her banking at FourthBank.Assume a simple money creation model, with no cash drain, no time deposits, and banks desire to hold no excess reserves. How does the open market purchase affect the final T-accounts for FirstBank, SecondBank and ThirdBank? What is the total increase in deposits that results from the initial change in reserves?

Economics: Private and Public Choice (MindTap Course List)
Economics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN:9781305506725
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Chapter13: Money And The Banking System
Section: Chapter Questions
Problem 15CQ
See similar textbooks
icon
Related questions
Question
Assume that the Fed purchases a security for $500,000 from FirstBank. Also assume that the reserve ratio is 0.2 (20%).FirstBank lends its excess reserves to Betty, who does her banking at SecondBank. SecondBank lends its excess reserves to Charlie, who does his banking at ThirdBank. ThirdBank lends its excess reserves to Donna, who does her banking at FourthBank.Assume a simple money creation model, with no cash drain, no time deposits, and banks desire to hold no excess reserves. How does the open market purchase affect the final T-accounts for FirstBank, SecondBank and ThirdBank? What is the total increase in deposits that results from the initial change in reserves?
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 2 steps

SEE SOLUTIONCheck out a sample Q&A here
Blurred answer
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
Economics: Private and Public Choice (MindTap Cou…
Economics: Private and Public Choice (MindTap Cou…
Economics
ISBN:
9781305506725
Author:
James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:
Cengage Learning
Macroeconomics: Private and Public Choice (MindTa…
Macroeconomics: Private and Public Choice (MindTa…
Economics
ISBN:
9781305506756
Author:
James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:
Cengage Learning
SEE MORE TEXTBOOKS