Question

The U.S. Treasury maintains accounts at commercial banks. What would be the consequences for the money supply if the Treasury shifted funds from one of those banks to the Fed? Answer yes or no to each of the following:A. The decrease in reserves would also appear on the Fed's balance sheet, but would be offset by an increase in the government's account.unansweredB. The balance sheet for the bank would reflect a decrease in reserves and a decrease in deposits.unansweredC. The decline in bank reserves would decrease the quantity of money.unansweredD. The balance sheet for the bank would reflect an increase in reserves and an increase in deposits.unansweredE. The increase in reserves would also appear on the Fed's balance sheet, but would be offset by a decrease in the government's account.unansweredF. The rise in bank reserves would increase in the quantity of money.

Answer 1

Answer:

A. YES

B. YES

C. YES

D. NO

E. YES

F. YES

Explanation:

The U.S. Treasury maintains accounts at commercial banks. What would be the consequences for the money supply if the Treasury shifted funds from one of those banks to the Fed? Answer yes or no to each of the following:

A. The decrease in reserves would also appear on the Fed's balance sheet, but would be offset by an increase in the government's account YES, because the amount was debited on the Federal Reserve Balance Sheet when the money was transfered to the commercial bank in question.

B. The balance sheet for the bank would reflect a decrease in reserves and a decrease in deposits YES because that was a debit transaction for the bank but a Credit transaction for the Federal Reserve.

C. The decline in bank reserves would decrease the quantity of money in the vault. YES, because a decline in the reserve will reduce the quantity of money in vault and in circulation because the Federal Reserve has used Open Market Operation (OMO) to regulate the volumes and velocities of money in circulation.

D. The balance sheet for the bank would reflect an increase in reserves and an increase in deposits - NO. This is because Balance sheets give at a glance financial status of banks. Therefore, there cannot be an increase in the Fictitious Assets when there was a withdrawl or transfer of funds.

E. The increase in reserves would also appear on the Fed's balance sheet, but would be offset by a decrease in the government's account, YES. This is true since the transfer to the Fed has shown increase in the Balance Sheet while the decrease will result in funding statutory expenses of the Government during allocation of funds to the MDAs.

F. The rise in bank reserves would increase in the quantity of money. YES. Definitely, the rise in the bank reserves will increase the volume of money in ciits vault and circulation because the Federal Reserve as an economic policy at the time of its introduction wants more liquidity (money) in the economy. It is an expantionary measure by the Federal Reserve.