What happen to reserves-checkable deposits in banking system

Reference no: EM13691197

Suppose that the Fed buys $10 million of bond from the First National Bank. (a) Use T-accounts to show how this operation affects the balance sheets of the Fed and of the First National Bank. What happens to reserves and monetary base right after the purchase? (b) Suppose that the reserve requirement is 10%, and all banks lend out all excess reserves. Using T-account, show the balance sheet of the banking system as a whole after the multiple deposit creation process as a result of the Fed $10 million bond purchase. What happens to reserves and the checkable deposits in the banking system?

Reference no: EM13691197

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