In The Tables That Follow You Will Find Consolidated Balance Sheets For The Comm

d.Now review each of the above three transactions, asking yourself these three questions:

(1) What change, if any, took place in the money supply as a direct and immediate result of each transaction?

(2) What increase or decrease in the commercial banks’ reserves took place in each transaction?

(3) Assuming a reserve ratio of 20 percent, what change in the money-creating potential of the commercial banking system occurred as a result of each transaction?

Transaction a:

1. The money supply

(Click to select)increaseddecreaseddid not change

.

2. Reserves

(Click to select)increaseddecreased

 from $34 to $billion.

3. Money-creating potential

(Click to select)decreasedincreased

 by $billion.

Transaction b:

1. The money supply

(Click to select)decreasedincreased

 by $billion.

2. Reserves

(Click to select)decreasedincreased

 from $34 to $ billion.

3. Money-creating potential

(Click to select)decreasedincreased

by $billion.

Transaction c:

1. The money supply

(Click to select)decreasedincreaseddid not change

.

2. Reserves

(Click to select)increaseddecreased

from $34 to $billion.

3. Money-creating potential

(Click to select)increaseddecreased

by $billion.

 

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