Activity 38 The mechanics of monetary policy Baseline

Activity 38 The mechanics of monetary policy

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

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

Baseline case, at 10% reserve requirement Assets Liabilities The FED Treasury Securities Reserve accounts of banks $26 Federal Reserve Notes $57 $83 Banks Reserve accounts at the FED $26 Federal Reserve Notes $4 Loans R. R. $405 Checkable deposits $300 Net worth (to stockholders) Bank Customers Checkable deposits $300 Federal Reserve Notes $53 Treasury Securities M 1 Loans $52 M 2 Money Supply = $353 ($300 + $53) $405 $135

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

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

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

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

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

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

Baseline case to $5 open market sale, at 10% reserve requirement Assets Liabilities The FED Treasury Securities Reserve accounts of banks $26 Federal Reserve Notes $57 $83 -5=78 Banks Reserve accounts at the FED $26 Federal Reserve Notes $4 Checkable deposits $300 -50 $300 = 250 Loans (to stockholders) $405 Net worth Bank Customers Checkable deposits Federal Reserve Notes Treasury Securities $300 -50 = 250 Loans $53 $52+5=57 Money Supply = $353 ($300 + $53) $405 $135

Baseline case to $5 open market sale, at 10% reserve requirement Assets Liabilities The FED Treasury Securities Reserve accounts of banks $26 - 5 = 21 Federal Reserve Notes $57 $83 -5=78 Banks Reserve accounts at the FED $26 - 5 = 21 Federal Reserve Notes $4 Checkable deposits $300 -50 $300 = 250 Loans (to stockholders) $405 Net worth Bank Customers Checkable deposits Federal Reserve Notes Treasury Securities $300 -50 = 250 Loans $53 $52+5=57 Money Supply = $353 ($300 + $53) $405 $135

Baseline case to $5 open market sale, at 10% reserve requirement Assets Liabilities The FED Treasury Securities Reserve accounts of banks $26 - 5 = 21 Federal Reserve Notes $57 $83 -5=78 Banks Reserve accounts at the FED $26 - 5 = 21 Federal Reserve Notes $4 Checkable deposits $300 -50 = 250 Loans $385 – 25 = (405 – 45) = 360 (to stockholders) Net worth Bank Customers Checkable deposits Federal Reserve Notes Treasury Securities $300 -50 = 250 Loans $53 $52+5=57 Money Supply = $353 ($300 + $53) $360 $135

Baseline case to $5 open market sale, at 10% reserve requirement Assets Liabilities The FED Treasury Securities Reserve accounts of banks $26 - 5 = 21 Federal Reserve Notes $57 $83 -5=78 Banks Reserve accounts at the FED $26 - 5 = 21 Federal Reserve Notes $4 Checkable deposits $300 -50 = 250 Loans $385 – 25 = (405 – 45) = 360 (to stockholders) Net worth Bank Customers Checkable deposits Federal Reserve Notes Treasury Securities $300 -50 = 250 Loans $53 $52+5=57 Money Supply = $353 ($300 + $53) now =$303 ($250 + $53) $360 $135