Question

Suppose banks keep no excess reserves and that all banks are currently meeting the reserve requirement. The Federal Reserve then makes an open market purchase of ​$ from Bank 1. Use the​ T-account below to show the result of this transaction for Bank​ 1, assuming Bank 1 keeps no excess reserves after the transaction. Bank​ 1's Account Assets Liabilities Reserves Deposits Loans Securities

Answer 1

Answer:

1. Assets is debited for $10,000 as loans.

2. Liabilities is credited for $10,000 as deposits.

Explanation:

Note: This question is not complete as the amount is omitted. The complete question is therefore presented before answering the question as follows:

Suppose banks keep no excess reserves and that all banks are currently meeting the reserve requirement. The Federal Reserve then makes an open market purchase of ​$10000 from Bank 1.

Use the​ T-account below to show the result of this transaction for Bank​ 1, assuming Bank 1 keeps no excess reserves after the transaction.

The explanation of the answer is now given as follows:

Note: See the attached photo for Bank 1's T-Account.

In the attached photo, we can see that:

1. Assets is debited for $10,000 as loans.

2. Liabilities is credited for $10,000 as deposits.