1. Assuming that LRR =25%, the Fed decided to apply a Monetary Expansion Policy using the Discount Rate Policy in the amount of $145,000,000 of Borrowed Reserves. a) Explain in words and numbers what does this monetary policy mean. Use the below questions as hints to help you give a complete answer:
(1) that is what does this statement mean that “the Fed is applying a Monetary Expansion Policy using the discount Rate Policy in the amount of $145,000,000 of borrowed reserves”? Explain its meaning.
(2) How would the Fed change the Discount Rate to achieve this policy?
(3) What does this amount of $145,000,000 of borrowed reserves represent? Explain what does this policy imply that the Fed is doing, and how is it affecting commercial banks in the economy and what is its effect on M-SS (in words and numbers) of the economy?
b) Show the effect of this monetary policy on the Money Market and Economy Market. Draw graphs to illustrate your answer.
c) Assuming that the policy was fully effective, and the total amount of borrowed reserves initiated by the Fed’s Discount Rate Policy had entered the banking system; show the effect of this policy on the Consolidated Balance Sheet of the banking sector of the economy assuming that the banking system does not give all its reserves in loans and investments but keeps excess cash reserves of $ 45,000,000 for daily operations. With this given, construct the new consolidated balance sheet?