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3 years ago

If the Fed sells $2 million of bonds to the First National Bank, what happens to reserves and the monetary base?

Business

1 answer:

Sindrei [870]3 years ago

4 0

Answer:

Reserves fall by $2 million, and the monetary base falls by $2 million.

Explanation:

In the books of First National Bank, the purchase of $2 million of bonds by First National Bank, from the Federal Reserve means there is a reserve with the Federal Reserve represented by security which stands as asset.

In the books of the Federal Reserve, The sales of bonds to First National Bank will create a liability from the reserve assets.

See attached for the T-accounts explain the answer

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1 year ago

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marusya05 [52]

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3 years ago

A cost estimation tool which is used to allocate money into an organization’s budget is known as a _____ estimate. a. ballpark b

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3 years ago

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The Walthers Company has a semi-annual coupon bond outstanding. An increase in the market rate of interest will have which one o

professor190 [17]

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The answer is D.

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3 years ago

You want to create a portfolio equally as risky as the market, and you have $500,000 to invest. Information about the possible i

Zarrin [17]

Answer:

Let investment in C = $x

Hence, investment in risk free asset = 500,000 - (139,000+141,000+x) = $220 - $x

1 = (139,000/500,000*0.84)+(141,000/500,000*1.29)+(x/500,000*1.44)+(220,000-x)/500,000*0 [Beta of market=1 ;Beta of risk-free assets=0]

1 = 0.23352+0.36378 + (x/500,000*1.44)

1 = 0.5973 + (x/500,000*1.44)

x = (1 - 0.5973)*500,000/1.44

x = 0.4027*347222.22

x = 139826.387994

x = $139,826.39

investment in C = $139,826.39

Hence, investment in risk free asset = $(220,000-x) = $220,000 - $139,826.39

Investment in risk free asset = $80,173.61

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2 years ago

If the Fed sells​ $2 million of bonds to the First National​ Bank, what happens to reserves and the monetary​ base?

If the Fed sells $2 million of bonds to the First National Bank, what happens to reserves and the monetary base?