For the following question assume the following: (1) The required reserve ratio in the banking system...
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For the following question assume the following: (1) The required reserve ratio in the banking system is 6%. (2) Banks hold no excess reserves. Any reserves above its required reserves are loaned out. (3) Individual households and firms do not hold currency. (a) Suppose that the Federal Reserve purchases $178,000 worth of bonds directly from Riverview Community Bank. Illustrate the T-account for Riverview Community Bank after this transaction has occurred. [3 Points] (b) Suppose that Riverview Community Bank loans out all of its excess reserves that resulted from the $178,000 Fed bond purchase to Ms. Barlett who uses the funds to purchase a house from Mr. Rho. Mr. Rho deposits the proceeds of the home sale into his checking account at Waterfield Bank. Illustrate the T-account for Waterfield Bank after this transaction has occurred. [3 Points] (c) Suppose that Waterfield Bank loans out any excess reserves that resulted from the initial $178,000 Fed bond purchase to Mr. Washington. Mr. Washington uses the loan to purchase some farm land in Madera County from Ms. Cortez. Ms. Cortez then deposits the funds from the sale of the land to her checking account at Madera Savings and Loan. Illustrate the T-account for Madera Savings and Loan after this transaction has occurred. [3 Points] (d) How much money (increase in total deposits) would be created in the banking system from the initial open market purchase of $178,000? [3 Points] For the following question assume the following: (1) The required reserve ratio in the banking system is 6%. (2) Banks hold no excess reserves. Any reserves above its required reserves are loaned out. (3) Individual households and firms do not hold currency. (a) Suppose that the Federal Reserve purchases $178,000 worth of bonds directly from Riverview Community Bank. Illustrate the T-account for Riverview Community Bank after this transaction has occurred. [3 Points] (b) Suppose that Riverview Community Bank loans out all of its excess reserves that resulted from the $178,000 Fed bond purchase to Ms. Barlett who uses the funds to purchase a house from Mr. Rho. Mr. Rho deposits the proceeds of the home sale into his checking account at Waterfield Bank. Illustrate the T-account for Waterfield Bank after this transaction has occurred. [3 Points] (c) Suppose that Waterfield Bank loans out any excess reserves that resulted from the initial $178,000 Fed bond purchase to Mr. Washington. Mr. Washington uses the loan to purchase some farm land in Madera County from Ms. Cortez. Ms. Cortez then deposits the funds from the sale of the land to her checking account at Madera Savings and Loan. Illustrate the T-account for Madera Savings and Loan after this transaction has occurred. [3 Points] (d) How much money (increase in total deposits) would be created in the banking system from the initial open market purchase of $178,000? [3 Points]
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