Suppose the balance sheet for Bank ABC is as given below, where numbers are in thousands of dollars. Assume that reserves are 10 percent of deposits and that people hold no currency. 
(A)Suppose the Federal Reserve sells $20,000 worth of government bonds to Joe, a private citizen, and Joe writes a check to the Fed from his checking account at Bank ABC. Show how Joe's purchase changes the balance sheet above.
(B)Is Bank ABC meeting its reserve requirements? Explain.
(C)If bonds are fixed, what has to happen to loans? Explain.
(D)What happens to the money supply in the economy as a result of Joe's purchase?
Definitions:
Poverty Line
A calculated income level used to determine who is considered poor, typically based on a family's total income and size, below which one is considered to live in poverty.
Poverty Rate
The proportion of a population living below the poverty line, indicating the level of economic deprivation in a society.
Conservative View
An economic philosophy that emphasizes free markets, limited government, and individual entrepreneurship as the keys to economic prosperity.
Charles Murray
A social scientist known for his controversial works on intelligence, education, and social structure in American society.
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