Question

CIELAMY VOIN Bank Three currently has $750 million in transaction deposits on its balance sheet. The Federal Reserve has currently set the reserve requirement at 8 percent of transaction deposits. points a. If the Federal Reserve decreases the reserve requirement to 6 percent, show the balance sheet of Bank Three and the Federal Reserve System just before and after the full effect of the reserve requirement change. Assume Bank Three withdraws all excess reserves and gives out loans and that borrowers eventually return all of these funds to Bank Three in the form of transaction deposits. b. Redo part (a) using a 10 percent reserve requirement. eBook Print Complete this question by entering your answers in the tabs below. References

Answer 1

Bank Three Initial Balance Sheet 750 x 8% = 60 Federal Reserve's Balance Sheet Assets Treasury Securities Liabilities 60 Reserve accounts 60 Bank Three's Balance Sheet Liabilities Assets Reserve accounts at the Federal Reserve Loans 750 60 Transaction deposits 690 Requirement a 60 / 0.06 = 1000 Assets Treasury Securities Liabilities 60 Reserve accounts 60 Bank Three's Balance Sheet Assets Liabilities Reserve accounts at the Federal Reserve Loans 1000 60 Transaction deposits 940 Requirement b 60 / 0.10 = 600 Assets Treasury Securities Liabilities 60 Reserve accounts 60 Bank Three's Balance Sheet Assets Liabilities Reserve accounts at the Federal Reserve Loans 600 60 Transaction deposits 540