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Calculation of banking required reserves

Suppose the banking system's nonborrowed reserves total $48.3 billion, with total legal reserves standing at $51.2 billion. What must borrowed reserves be? This morning the Federal Reserve decided to undertake the sale of $500 million in government securities through open market operations. What will the new level of nonborrowed reserves? If interest rates do not change, what will be the new level of total reserves? What must you assume to make this calculation? If interest rates do change, which way are they likely to move?

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Nonborrowed reserves consist of total reserves (member bank deposits in Federal Reserve Banks, plus vault cash) less funds borrowed (borrowed reserves) at the Federal Reserve Discount Window. So borrowed reserves are total reserves minus nonborrowed reserves, or 51.2 - 48.3 = $2.9 billion. Open market operations allow the Federal Reserve to adjust directly the supply of nonborrowed reserves in the banking system. To increase reserves, the Federal Reserve ...

Solution Summary

Calculation of banking required reserves and relationship between the Federal funds rate and banking reserves.