Bank A lends $50,000 to Anna by crediting her checking account by $50,000. After this loan is made, M1 money supply will equal 325,000.00 dollars and M2 money supply will equal 2,265,000.00 dollars. Start with the M1 and M2 amounts (after the loan was made to Anna). Anna uses that $50,000 to buy herself a nice little piece of land in the countryside. Anna pays for this land by writing a check on her Bank A checking account and giving it to the seller of the land. The seller deposits the check in his savings account at Bank B. After this transaction is completed, the M1 money supply equals 275,000.00 dollars and the M2 money supply equals 2,265,000.00 dollars.

After Anna pays for the land and after the inter-bank transactions are completed, the amount of Bank A reserves at the Fed will equal _____ dollars and the amount of Bank B reserves at the Fed will equal ____ dollars.
 

Transcribed Image Text:

Reserves Treasury Bonds Loans Total Reserves Assets Uses of Funds Loans Total Assets Uses of Funds Treasury Bonds Bank A Balance Sheet $65,000 Demand Deposits Other Deposits $85,000 Borrowing From the Fed From Fed Funds Market $1,350,000 Net Worth $1,500,000 Total Liabilities + Net Worth Sources of Funds Bank B Balance Sheet $35,000 Borrowing $10,000 Demand Deposits Other Deposits Liabilities + Net Worth Sources of Funds $1,255,000 Net Worth $1,300,000 Total From the Fed From Fed Funds Market $150,000 $1,000,000 $50,000 $100,000 $200,000 $1,500,000 $100,000 $940,000 $0 $30,000 $230,000 $1,300,000 Reserves Treasury Bonds Loans Total Reserves Assets Uses of Funds Loans Total Assets Uses of Funds Treasury Bonds Bank A Balance Sheet $65,000 Demand Deposits Other Deposits $85,000 Borrowing From the Fed From Fed Funds Market $1,350,000 Net Worth $1,500,000 Total Liabilities + Net Worth Sources of Funds Bank B Balance Sheet $35,000 Borrowing $10,000 Demand Deposits Other Deposits Liabilities + Net Worth Sources of Funds $1,255,000 Net Worth $1,300,000 Total From the Fed From Fed Funds Market $150,000 $1,000,000 $50,000 $100,000 $200,000 $1,500,000 $100,000 $940,000 $0 $30,000 $230,000 $1,300,000

Answer rating: 100% (QA)

After Anna pays for the land and after the interbank transactions are completed the amount of Bank A ... View the full answer