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Chapter 15: Q.5 (page 410)

If a bank sells \(10 million of bonds to the Fed to pay back \)10million on the loan it owes, what is the effect on the level of checkable deposits?

Short Answer

Expert verified

The checkable deposits remain unchanged.

Step by step solution

01

Concept Introduction

Checkable deposit is a specialized term for any demand deposit account against which checks or drafts of any sort might be composed.

02

Explanation

None. The decrease of $10million in discount loans and increment of $10million of bonds held by the Fed leaves the degree of reserves unaltered so checkable deposits to remain unaltered.

03

Final Answer

The reduction in discount loans and increase in bonds leaves the checkable deposit unchanged.

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Most popular questions from this chapter

Go to the St. Louis Federal Reserve FRED database, and find the most current data available on Currency (CURRNS), Total Checkable Deposits (TCDNS), Total Reserves (RESBALNS), and Required Reserves (RESBALREQ).

  1. Calculate the value of the currency deposit ratio c.
  2. Use RESBALNS and RESBALREQ to calculate the amount of excess reserves, and then calculate the value of the excess reserve ratio e. Be sure the units of total and required reserves are the same when you do the calculations.
  3. Assuming a required reserve ratio rr of 11%, calculate the value of the money multiplier m.

Using T-accounts, show what happens to checkable deposits in the banking system when the Fed sells $2 million of bonds to the First National Bank.

In October 2008, the Federal Reserve began paying interest on the amount of excess reserves held by banks. How, if at all, might this affect the multiplier process and the money supply?

Describe how each of the following can affect the money supply:

(a) The central bank

(b) banks

(c) depositors.

Using T-accounts, show what happens to checkable deposits in the banking system when the Fed lends $1million to the First National Bank.
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