Table 29-1Effects of an open-market transaction on the balance sheets of banks and the fed (in millions of dollars)
Banks
?
Federal Reserve System
?
Assets
Liab.
Assets
Liab.
Reserves +$10
?
U.S. Gov’t
Bank Reserves
U.S. Gov’t
?
Sec. +$10
+$10
Securities?$10
?
?
?
?
After the transaction in Table 29-1 is completed, what happens to actual reserves, required reserves, and excess reserves? Assume the required reserve ratio is 25 percent.
A. Actual reserves increase by $10 million, required reserves increase $2.5 million, and excess reserves increase by $7.5 million.
B. Actual reserves decrease by $10 million, required reserves decrease $2.5 million, and excess reserves decrease by $7.5 million.
C. Actual reserves increase by $10 million, required reserves are unchanged, and excess reserves increase by $10 million.
D. Actual reserves decrease by $10 million, required reserves decrease by $10 million, and excess reserves are unchanged.
Answer: C
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