(Transcript of audio with descriptions. Transcript includes narrator headings and description headings of the visual content)
(Speaker)
The next step is to analyze how the open market purchase by the Federal Reserve affects commercial banks.
(Description)
The problem is given. Show the changes to the T-accounts for the Federal Reserve and for commercial banks when the Federal Reserve buys 50 million dollars in U.S. Treasury bills. If the public holds a fixed amount of currency (so that all loans create an equal amount of deposits in the banking system), the minimum reserve ratio is 10 percent, and banks hold no excess reserves.
(Speaker)
We start with the basic commercial bank balance sheet.
(Description)
Show the initial change in the balance sheet for commercial banks (use plus to indicate an increase and minus to indicate a decrease). Table with two columns - Assets and Liabilities - is presented. Assets values are "Reserves blank million dollars" and "Treasury Bills blank million dollars".
(Speaker)
The purchase by the Federal Reserve will initially change asset composition of commercial banks. Commercial banks are not taking on additional liabilities, but are simply trading US Treasury bills for excess reserves. Commercial banks will realize a decrease of 50 million dollars in Treasury bills but an increase of 50 million dollars in reserve holdings.
(Description)
Value of minus 50 million dollars is inserted into the blank for assets treasury bills. Value of plus 50 million dollars is inserted into the blank for assets reserves.
(Speaker)
It is worth pointing out that the total amount of assets remains unchanged, and the additional reserves will be excess reserves as the bank did not have an increase in demand deposits.