T - account of the banking system - equilibrium, Financial Management

Suppose that the Fed buys $1 million of bonds from the First National Bank. If the First National Bank and all other banks use the resulting increase in reserves to purchases bonds from the public and not to make loans. The public deposit the revenue from selling bonds in their checking account. What will the T-account of the banking system look like when the banking system is in equilibrium? What will happen to checkable deposits? We assume that

(a) the required reserve ratio on checkable deposits is 10%,

(b) banks do not hold any excess reserves, and

(c) the public's holdings of currency do not change.

Posted Date: 3/20/2013 1:54:37 AM | Location : United States

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