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mAnswers to Chapter 12 Questions.........................................................
- The Fed’s assets include securities, discount loans, Items in the Process of Collection
(CIPC), Gold Certificates, Special Drawing Rights (SDRs), coins, buildings, and foreign-
currency reserves. The Fed’s liabilities are currency outstanding, deposits by depository
institutions, U.S. Treasury deposits, foreign and other deposits, Deferred Availability Cash
Items (DACI), Federal Reserve float. The Fed’s net worth equals total assets minus total
liabilities. - Go through the T-account transactions for the checking writing process by changing the
amount of the check. - Float changes in December and April. People buy Christmas presents in December and pay
their taxes in April. Anything could affect the float if it slows down the mail, such as bad
weather or a transportation strike. - A rise in the float increases both the monetary base and money supply.
- The Treasury Deposit increases the Fed's liabilities, shrinking both the monetary base and
money supply. - If the banks reduce the amount of discount loans, then the Fed's assets fall, decreasing both
the monetary base and money supply. - The Fed cannot control the U.S. Treasury deposits, the float (CIPC - DACI), gold
certificates, SDRs, and foreign government deposits. - The U.S. Treasury does not influence the monetary base or money supply by changing taxes
or issuing more U.S. securities, as long as it sells the securities to the public. - The Fed tries to stabilize interest rates. If the U.S. Treasury issues too much debt, then the
interest rate increases. Thus, the Fed must purchase these U.S. securities to lower the interest
rate.