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TOOLS OF FED POLICY

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					   TOOLS OF FED POLICY
• OPEN MARKET OPERATIONS
• DISCOUNT LOANS
• CHANGES IN REQUIRED RESERVES
Open Market Operations

ASSETS                LIABILITIES + NW
Deposits at FED       checking deposits
             100000             1000000
Loans
             900000
Government Secs
             500000
Building etc          Net W orth
             500000   1 million
                       .
        FED buys our securities from us.
     Pays for them by crediting our account
ASSETS                     LIABILITIES + NW
Deposits at FED            checking deposits
             600000                  1000000
Loans
             900000
Government Secs
                  0
Building etc               Net Worth
             500000        1 million
We lend out what we have in excess
             reserves


   ASSETS                LIABILITIES + NW
   Deposits at FED       checking deposits
                600000             1500000
   Loans
              1400000
   Government Secs
                     0
   Building etc          Net Worth
                500000   1 million
As checks clear against our bank we get

    ASSETS                 LIABILITIES + NW
    Deposits at FED        checking deposits
                 100000              1000000
    Loans
               1400000
    Government Secs
                      0
    Building etc           Net Worth
                 500000    1 million



    Initial increase in deposits
    $500,000
        Discount loans
ASSETS                LIABILITIES + NW
Deposits at FED
                      checking deposits
             100000
Loans                           1000000
             900000   Loan from FED
Government Secs                         0
             500000
Building etc
             500000
                      Net Worth
                      1 million
We make loans out of the $20,000
    borrowed from the FED

 ASSETS                LIABILITIES + NW
 Deposits at FED       checking deposits
              120000            1,020,000
 Loans                 Loan from FED
             920,000                20000
 Government Secs
              500000
 Building etc          Net Worth
              500000   1 million
checks clear against our bank …


ASSETS                   LIABILITIES + NW
Deposits at FED          checking deposits
             100000               1,000,000
Loans                    Loan from FED
            920,000                   20000
Government Secs
             500000
Building etc             Net Worth
             500000      1 million



   Initial increase in
   deposits $20,000
        Changes in rD
ASSETS                LIABILITIES + NW
Deposits at FED       checking deposits
             100000             1000000
Loans
             900000
Government Secs
             500000
Building etc          Net Worth
             500000   1 million
 change rD from 10% to 5%


ASSETS
                      LIABILITIES + NW
Deposits at FED       checking deposits
             100000             1050000
Loans
             950000
Government Secs
             500000
Building etc          Net Worth
             500000   1 million
checks clear against our bank
     we end up with …

ASSETS
                           LIABILITIES + NW
Deposits at FED
                           checking deposits
              50000                  1000000
Loans
             950000
Government Secs
             500000
Building etc               Net Worth
             500000        1 million



    Initial increase in deposits
    $50,000

				
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posted:4/28/2013
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