Use commercial bank and Federal Reserve Bank balance sheets to demonstrate the immediate effect of each of the following transactions on commercial bank reserves. Assume that the initial reserve ratio is 20 percent. Fill in the new balance in the column in the balance sheet that corresponds with each of the following transactions. Consider each transaction separately, not cumulatively. (A) Federal Reserve Banks purchase $2 billion worth of securities from banks. (B) Commercial banks borrow $1 billion from Federal Reserve Banks at the discount rate. (C) The Fed reduces the reserve ratio from 20 percent to 19 percent.
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