Show the changes to the T-accounts for the Federal Reserve and for commercial banks when the Federal Reserve sells \(\$ 30\) million in U.S. Treasury bills. If the public holds a fixed amount of currency (so that all new loans create an equal amount of checkable bank deposits in the banking system) and the minimum reserve ratio is \(5 \%\), by how much will checkable bank deposits in the commercial banks change? By how much will the money supply change? Show the final changes to the T-account for the commercial banks when the money supply changes by this amount.

Present the initial T-account changes for both the Federal Reserve and the commercial banks after the Federal Reserve sells the Treasury bills: Federal Reserve: - Assets: U.S. Treasury bills decrease by \$30 million - Liabilities: Reserves held by commercial banks decrease by \$30 million Commercial Banks: - Assets: Reserves held at the Federal Reserve decrease by \$30 million - Liabilities: Deposits remain unchanged

To calculate the change in checkable bank deposits in commercial banks, we first need to calculate the money multiplier, which can be given as: Money multiplier = \(\frac{1}{reserve\;ratio} = \frac{1}{0.05} = 20\) Now, we can calculate the change in checkable bank deposits by multiplying the decrease in reserves by the money multiplier: Change in checkable bank deposits = 20 x (-\$30 million) = -\$600 million Since the money supply includes checkable bank deposits, the money supply will decrease by the same amount: Change in money supply = -\$600 million

Show the final changes in the T-account for the commercial banks after the money supply changes by the calculated amount: Assets: - Reserves held at the Federal Reserve: Decrease by \$30 million - Loans: Increase by \$570 million (because the banks have used the excess reserves to create new loans) Liabilities: - Deposits: Decrease by \$600 million (this represents the new checkable bank deposits after the money multiplier effect) In conclusion, the T-account for commercial banks will show a decrease of \$30 million in reserves held at the Federal Reserve, an increase of \$570 million in loans, and a decrease of \$600 million in deposits after the Federal Reserve sells \$30 million in U.S. Treasury bills, assuming a minimum reserve ratio of \(5 \%\) and the public holding a fixed amount of currency. The money supply will decrease by \$600 million as a result of this action.