Activity 38 The mechanics of monetary policy

Baseline case Assets Liabilities The FED Treasury Securities Federal Reserve Notes Checkable deposits Loans Federal Reserve Notes Reserve accounts of banks Net worth (to stockholders) Reserve accounts at the FED $83 $26 $ 4 $405 $57 $300 $135 $300$405 $53 $52 Banks Bank Customers Money Supply = $353 ($300 + $53)

Baseline case Assets Liabilities The FED Treasury Securities Federal Reserve Notes Checkable deposits Loans (excess reserves) Loans Federal Reserve Notes Reserve accounts of banks Net worth (to stockholders) Reserve accounts at the FED $83 $26 $ 4 $405 $57 $300 $135 $300$405 $53 $52 Banks Bank Customers Money Supply = $353 ($300 + $53) $435 $405 $83

Baseline case, at 10% reserve requirement Assets Liabilities The FED Treasury Securities Federal Reserve Notes Checkable deposits Loans Federal Reserve Notes Reserve accounts of banks Net worth (to stockholders) Reserve accounts at the FED $83 $26 $ 4 $405 $57 $300 $135 $300$405 $53 $52 Banks Bank Customers Money Supply = $353 ($300 + $53) R.R. M1 M2

Baseline case Assets Liabilities The FED Treasury Securities Federal Reserve Notes Checkable deposits Loans Federal Reserve Notes Reserve accounts of banks Net worth (to stockholders) Reserve accounts at the FED $83 $26 $ 4 $405 $57 $300 $135 $300$405 $53 $52 Banks Bank Customers Money Supply = $353 ($300 + $53)

Baseline case Assets Liabilities The FED Treasury Securities Federal Reserve Notes Checkable deposits Loans Federal Reserve Notes Reserve accounts of banks Net worth (to stockholders) Reserve accounts at the FED $83 $26 $ 4 $405 $57 $300 $135 $300$405 $53 $52 Banks Bank Customers Money Supply = $353 ($300 + $53)

Baseline case Assets Liabilities The FED Treasury Securities Federal Reserve Notes Checkable deposits Loans Federal Reserve Notes Reserve accounts of banks Net worth (to stockholders) Reserve accounts at the FED $83 $26 $ 4 $405 $57 $300 $135 $300$405 $53 $52 Banks Bank Customers Money Supply = $353 ($300 + $53)

Baseline case Assets Liabilities The FED Treasury Securities Federal Reserve Notes Checkable deposits Loans Federal Reserve Notes Reserve accounts of banks Net worth (to stockholders) Reserve accounts at the FED $83 $26 $ 4 $405 $57 $300 $135 $300$405 $53 $52 Banks Bank Customers Money Supply = $353 ($300 + $53)

Baseline case Assets Liabilities The FED Treasury Securities Federal Reserve Notes Checkable deposits Loans (excess reserves) Loans Federal Reserve Notes Reserve accounts of banks Net worth (to stockholders) Reserve accounts at the FED $83 $26 $ 4 $405 $57 $300 $135 $300$405 $53 $52 Banks Bank Customers Money Supply = $353 ($300 + $53) $435 -$30 =$405 $435

Baseline case to $5 open market sale, at 10% reserve requirement Assets Liabilities The FED Treasury Securities Federal Reserve Notes Checkable deposits Loans Federal Reserve Notes Reserve accounts of banks Net worth (to stockholders) Reserve accounts at the FED $83-5=78 $26 $ 4 $405 $57 $300 $135 $300$405 $53 $52+5=57 Banks Bank Customers Money Supply = $353 ($300 + $53)

Baseline case to $5 open market sale, at 10% reserve requirement Assets Liabilities The FED Treasury Securities Federal Reserve Notes Checkable deposits Loans Federal Reserve Notes Reserve accounts of banks Net worth (to stockholders) Reserve accounts at the FED $83-5=78 $26 $ 4 $405 $57 $300 $135 $300$405 $53 $52+5=57 Banks Bank Customers Money Supply = $353 ($300 + $53) $ = 250

Baseline case to $5 open market sale, at 10% reserve requirement Assets Liabilities The FED Treasury Securities Federal Reserve Notes Checkable deposits Loans Federal Reserve Notes Reserve accounts of banks Net worth (to stockholders) Reserve accounts at the FED $83-5=78 $26 $ 4 $405 $57 $300 $135 $300$405 $53 $52+5=57 Banks Bank Customers Money Supply = $353 ($300 + $53) $ = 21 $ = 250

Baseline case to $5 open market sale, at 10% reserve requirement Assets Liabilities The FED Treasury Securities Federal Reserve Notes Checkable deposits Loans Federal Reserve Notes Reserve accounts of banks Net worth (to stockholders) Reserve accounts at the FED $83-5=78 $ = 21 $ 4 $385 – 25 = (405 – 45) = 360 $57 $ = 250 $135 $ = 250$360 $53 $52+5=57 Banks Bank Customers Money Supply = $353 ($300 + $53)

Baseline case to $5 open market sale, at 10% reserve requirement Assets Liabilities The FED Treasury Securities Federal Reserve Notes Checkable deposits Loans Federal Reserve Notes Reserve accounts of banks Net worth (to stockholders) Reserve accounts at the FED $83-5=78 $ = 21 $ 4 $385 – 25 = (405 – 45) = 360 $57 $ = 250 $135 $ = 250$360 $53 $52+5=57 Banks Bank Customers Money Supply = $353 ($300 + $53) now =$303 ($250 + $53)