question archive Suppose the Federal Reserve instructs the Trading Desk to purchase $1 billion of securities
Suppose the Federal Reserve instructs the Trading Desk to purchase $1 billion of securities
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Suppose the Federal Reserve instructs the Trading Desk to purchase $1 billion of securities. Show the result of this transaction on the balance sheets of the Federal Reserve System and commercial banks.
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Balance sheet of Federal Reserve Bank is shown below:
| Account Tile | Amount ($) | Amount ($) |
|---|---|---|
| Assets | ||
| U.S. government securities | 1,000,000,000 | |
| Total | 1,000,000,000 | |
| Liabilities | ||
| Demand deposits to banks | 1,000,000,000 | |
| Total | 1,000,000,000 |
Balance sheet of Commercial Bank is shown below:
| Account Tile | Amount ($) | Amount ($) | |
|---|---|---|---|
| Assets | |||
| Loans at securities | 9,000,000,000 | ||
| Add: | Deposits at fed | 1,000,000,000 | |
| Total | 10,000,000,000 | ||
| Liabilities | |||
| Demand deposits | 10,000,000,000 | ||
| Total | 10,000,000,000 |
