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Part III: Please answer the following problems (show all work where applicable!) (1) The following are simplified balance sheets for the commercial banking system and the Federal Reserve system (Note: No cash account exists and all checks are deposited). Perform each of the following three transactions a,b,c, making appropriate changes in columns (1) through (3) in each balance sheet. Do not cumulate your answers and only fill in those spaces which pertain to the transaction. (16 pts.) Commercial Banking System: (1) (3) Assets: Reserves Securities Loans 80 Liabilities: Demand Deposits Loans from FRB's $200 1 Federal Reserve Banks @ ! || || 6 11 11 Assets: Securities Loans to CB's Liabilities: Reserves of CB's Treasury Deposits Fed Reserve notes 5 35 (a) Suppose a drop in the discount rate causes commercial banks to borrow an additional $3 billion from the FED. (Use column 1) (b) The FED buys $4 billion of govt. bonds from the public. (Use column 2) (c) The Treasury spends $2 billion on research for new space satellite. (Use column 3). Part III: Please answer the following problems (show all work where applicable!) (1) The following are simplified balance sheets for the commercial banking system and the Federal Reserve system (Note: No cash account exists and all checks are deposited). Perform each of the following three transactions a,b,c, making appropriate changes in columns (1) through (3) in each balance sheet. Do not cumulate your answers and only fill in those spaces which pertain to the transaction. (16 pts.) Commercial Banking System: (1) (3) Assets: Reserves Securities Loans 80 Liabilities: Demand Deposits Loans from FRB's $200 1 Federal Reserve Banks @ ! || || 6 11 11 Assets: Securities Loans to CB's Liabilities: Reserves of CB's Treasury Deposits Fed Reserve notes 5 35 (a) Suppose a drop in the discount rate causes commercial banks to borrow an additional $3 billion from the FED. (Use column 1) (b) The FED buys $4 billion of govt. bonds from the public. (Use column 2) (c) The Treasury spends $2 billion on research for new space satellite. (Use column 3)

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