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In the tables that follow, you will find consolidated balance sheets for the commercial banking system and the 12 Federal Reserve Banks.
d.Now review each of the above three transactions, asking yourself these three questions:
(1) What change, if any, took place in the money supply as a direct and immediate result of each transaction?
(2) What increase or decrease in the commercial banks’ reserves took place in each transaction?
(3) Assuming a reserve ratio of 20 percent, what change in the money-creating potential of the commercial banking system occurred as a result of each transaction?
Transaction a:
1. The money supply
(Click to select)increaseddecreaseddid not change.
2. Reserves
(Click to select)increaseddecreasedfrom $34 to $billion.
3. Money-creating potential
(Click to select)decreasedincreasedby $billion.
Transaction b:
1. The money supply
(Click to select)decreasedincreasedby $billion.
2. Reserves
(Click to select)decreasedincreasedfrom $34 to $ billion.
3. Money-creating potential
(Click to select)decreasedincreasedby $billion.
Transaction c:
1. The money supply
(Click to select)decreasedincreaseddid not change.
2. Reserves
(Click to select)increaseddecreasedfrom $34 to $billion.
3. Money-creating potential
(Click to select)increaseddecreasedby $billion.
