Assume that the following balance sheet portrays the state ofthe banking system. The banks currently have no excessreserves.
Assets | Liabilities and Net Worth |
|---|
(Billions of Dollars) |
|---|
| Total reserves | 5 | Checkable deposits | 50 |
| Loans | 25 | | |
| Securities | 20 | | |
| Total | 50 | Total | 50 |
What is the required reserve ratio?
10%
40%
5%
25%
Suppose that the Federal Reserve (the \"Fed\") sells $4 million ofbonds to a bond dealer, who pays the Fed by writing a check againstthe funds in her checking account. What is the initial impact ofthis transaction?
The banking system's holdings of securities fall by $4 million,and the banking system's total reserves rise by $4 million.
Checkable deposits fall by $4 million, and the banking system'sholdings of securities fall by $4 million.
Checkable deposits fall by $4 million, and the banking system'stotal reserves fall by $4 million.
The banking system's holdings of securities rise by $4 million,and the banking system's total reserves fall by $4 million.
As a result of the Fed's sale of $4 million of securities,checkable deposits in the banking system can potentially  by as much as   .
