Analysis of contraction monetary policies.
Consider the T-account of the subsequent bank and answer the subsequent questions based on it.
|
Tarheel bank
|
|
Asset
|
liabilities
|
|
Cash Reserves
|
240,000
|
1,400,000
|
Deposits
|
|
Loans
|
1,360,000
|
200,000
|
Stockholder's Equity
|
|
Total
|
1,600,000
|
1,600,000
|
Total
|
a) Suppose the Federal Reserve was concerned which the economy was growing too fast raising the fears which inflation may increase. Using open market operations, how might the Federal Reserve Open Market Committee respond to this concern? Illustrate what kind of monetary would make sense? How would it affect the economy?
b) Specifically, how would the above policy affect the balance sheet of the bank above assuming the Tarheel bank participated in the open market operation? How would it specifically affect the bank's balance sheet? How would this achieve the end of the Fed? Explain.