Question

Use T-accounts to show the effect of the following actions on the balance sheets of the Fed and the banking system: The Fed increases discount loans by $2 billion. Discount Loans by $2 billion. Reserves. by $2 billion The Fed carries out a $2 billion open market sale. Discount Loans, by $2 billion Reserves by $2 billion The Fed buys a new information technology system for the Federal Reserve Bank of Atlanta from DeShawn's Computer Services for $1 million Discount Loans, by $1 million Reserves, by $1 million

Answer 1

a) The Fed provides fund to the bank by increasing their reserve accounts. Fed's asset rise by 2 Billion

Federal Reserve
Asset	Liabilities
Discount loan	2 Billion	Reserve	2 Billion

Banking System
Asset	Liabilities
Reserve	2 Billion	Discount loan	2 Billion

b)When the Fed sells bonds, it decreases the money supply by removing cash from the economy in exchange for bonds.

Federal Reserve
Asset	Liabilities
Security	(2 Billion)	Reserve	(2 Billion)

Banking System
Asset	Liabilities
Security	2 Billion
Reserve	(2 Billion)

c)

Federal Reserve
Asset	Liabilities
		Reserve	1 Million
		Currency	(1 Million)

Banking System
Asset	Liabilities
Reserve	1 Million	Demand Deposit	1 Million