Answer the question on the basis of the given consolidated balance sheet of the commercial banking system. Assume that the reserve requirement is 10 percent. All figures are in billions.
Assets Liabilities & Net Worth
Reserves $60 Checkable Deposits $600
Securities 140 Stock Shares 260
Loans 260 Property 400 Suppose the Fed bought $20 billion of U.S. securities from the banks. This would
Multiple Choice
increase bank reserves to $80 billion, reduce bank-held securities to $120 billion, and, assuming a full money multiplier effect, increase the money supply (checkable deposits) by $200 billion.
increase bank reserves to $80 billion, reduce bank-held securities to $120 billion, and, assuming a full money multiplier effect, decrease the money supply (checkable deposits) by $200 billion.
reduce bank reserves to $40 billion, increase bank-held securities to $160 billion, and, assuming a full money multiplier effect, decrease the money supply (checkable deposits) by $200 billion.
reduce bank reserves to $40 billion, increase bank-held securities to $160 billion, and, assuming a full money multiplier effect, increase the money supply (checkable deposits) by $200 billion.