Use the Following to Answer Questions

question 165

Multiple Choice

Use the following to answer questions .
Exhibit: Fed Sells Bonds
Scenario 2: Fed sells bonds to Henry Hyde
Consider a banking system in which the reserve requirement is 10%, banks try not to hold excess reserves, consumers and firms hold money only in the form of checking account balances, and all loan proceeds are spent. Suppose initially all banks in the system are loaned up. Now, suppose that the Fed sells a $50,000 bond to Henry Hyde, who pays for the bond by writing a check drawn against Jekyll Bank.
-(Exhibit: Fed Sells Bonds) As a result of the open market sale, Jekyll Bank

• A) can create $50,000 of new loans.
• B) will have $45,000 of excess reserves.
• C) will have to borrow reserves to replenish its reserve deficiency.
• D) will have an increase in checkable deposits.

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Definitions:

Income Statement

A financial report that shows a company's revenues, expenses, and profits over a specific period, often a fiscal quarter or year.

Financial Statements

Reports that summarize the financial performance and position of a business, including the balance sheet, income statement, and statement of cash flows.

Debits

Accounting entries that increase asset or expense accounts or decrease liability, equity, or revenue accounts.

Credits

Entries made on the right side of an account in double-entry bookkeeping, which decrease assets or increase liabilities and equity.