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Chapter 15: Q.5 (page 410)

If a bank sells \(10 million of bonds to the Fed to pay back \)10million on the loan it owes, what is the effect on the level of checkable deposits?

Short Answer

Expert verified

The checkable deposits remain unchanged.

Step by step solution

01

Concept Introduction

Checkable deposit is a specialized term for any demand deposit account against which checks or drafts of any sort might be composed.

02

Explanation

None. The decrease of $10million in discount loans and increment of $10million of bonds held by the Fed leaves the degree of reserves unaltered so checkable deposits to remain unaltered.

03

Final Answer

The reduction in discount loans and increase in bonds leaves the checkable deposit unchanged.

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Most popular questions from this chapter

Using T-accounts, show what happens to checkable deposits in the banking system when the Fed sells $2 million of bonds to the First National Bank.

In October 2008, the Federal Reserve began paying interest on the amount of excess reserves held by banks. How, if at all, might this affect the multiplier process and the money supply?

Go to http://www.federalreserve.gov/boarddocs/hh/

and find the most recent monetary policy report of the

Federal Reserve. Read the first two parts of the report,

which summarizes Monetary Policy and the Economic

Outlook. Write a one-page summary of each of these

parts of the report.

Using T-accounts, show what happens to checkable deposits in the banking system when the Fed lends $1million to the First National Bank.

If you decide to hold \(100 less cash than usual and therefore deposit \)100 more cash in the bank, what effect will this have on checkable deposits in the banking system if the rest of the public keeps its holdings of currency constant?
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