Handout 3e - Handout 3e Deposit Creation Spring 2007 The...

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Handout 3e – Deposit Creation Spring 2007 Page 1 of 2 The Balance Sheets for the Federal Reserve and Commercial Banks Federal Reserve Commercial Banks Assets Liabilities Assets Liabilities Gold 11 b Currency 653 b Reserves 27 b Deposits 4500 b Loans to Banks 32 b Reserves 27 b Loans 4200 b Other 2000 b Gov’t bonds 642 b Gov’t bonds 1700 b Other 45 b Other 50 b Other 1073 b Net Worth 500 b Total assets 730 b Total liabilities 730 b (Monetary Base) Total assets 7000 b Total liabilities 7000 b Source: Board of Governors of the Federal Reserve System An Open Market Purchase of 1 billion dollars (with a desired reserve-deposit ratio of 0.20 or 20%) Federal Reserve Commercial Banks Assets Liabilities Assets Liabilities Gov’t bonds +1.0 b Reserves +1.0 b Reserves +1.0 b Deposits +0 b Currency +0 b Loans +0 b Other +0 b Gov’t bonds -1.0 b Other +0 b Net Worth +0 b Total assets +1.0 b Total liabilities +1.0 b (Monetary Base) Total assets +0 b Total liabilities +0 b Note: a ‘+’ means an increase in the item and a ‘-’ means a decrease in the item.
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