Question

Bank Three currently has $600 million in transaction deposits on its balance sheet. The Federal Reserve has currently set the reserve requirement at 10 percent of transaction deposits. a. If the Federal Reserve decreases the reserve requirement to 8 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 12 percent reserve requirement.

Answer 1

Book1 - Excel Sign in o X File Home Insert Page Layout Formulas Data Review View Help Tell me what you want to do & Share Σ AutoSum Calibri - 12 Å lili ab Wrap Text General Bad AY O X Cut Eg Copy Format Painter Fill - Paste B I U % Merge & Center - Insert Delete Format .00 Normal Conditional Format as Good Formatting Table Styles Neutral 20 Clear Sort & Find & Filter - Select Editing Number Cells Clipboard Font Alignment UPDATES AVAILABLE Updates for Office are ready to be installed, but first we need to close some apps. Update now X K11 fie А B с E F G H 1 J K L M N O Р 1 Solution- 2 3 a) 4 5 Panel A : Initial Balance Sheets 6 7 Assets 8 Securities Federal Reserve Bank Liabilities $60 $60 million Reserve accounts million 9 Bank Three Liabilities $600 Transaction deposits million million million Federal Reserve Bank 10 11 Assets 12 Reserve deposits at Fed $60 13 Loans $540 14 15 Panel B : Balance Sheet after all Changes 16 17 Assets 18 Securities $60 19 20 21 Assets 22 Reserve deposits at Fed $60 23 Loans ($750-$60) $690 24 25 Liabilities $60 million Reserve accounts million Bank Three Liabilities million Transaction deposits (60/0.08) $750 million million 20 Sheet1 Sheet2 + Ready 100% O Type here to search 1 O a I () ENG 12:01 AM 20-09-2020

Book1 - Excel Sign in o X File Home Insert Page Layout Formulas Data Review View Help Tell me what you want to do & Share Σ AutoSum Cut Es Copy Calibri - 12 Å lili ab Wrap Text General ED Bad AY O H Fill - Paste BIU- A - % Merge & Center - Insert Delete Format .00 Normal Conditional Format as Good Formatting Table Styles Neutral 20 Format Painter Clear Sort & Find & Filter - Select Editing Number Cells Clipboard Font Alignment UPDATES AVAILABLE Updates for Office are ready to be installed, but first we need to close some apps. Update now X J7 X fie А. B с D E F G Н. 1 J K L M N o Р 1 2 3 b) 4 5 Panel A : Initial Balance Sheets 6 7 Assets 8 Securities Federal Reserve Bank Liabilities $60 $60 million Reserve accounts million 9 Bank Three Liabilities $600 Transaction deposits million million million Federal Reserve Bank 10 11 Assets 12 Reserve deposits at Fed $60 13 Loans $540 14 15 Panel B : Balance Sheet after all Changes 16 17 Assets 18 Securities $60 19 20 21 Assets 22 Reserve deposits at Fed $60 23 Loans ($500-$60) $440 24 25 Liabilities $60 million Reserve accounts million Bank Three Liabilities million Transaction deposits (60/0.12) $500 million million Sheet1 Sheet2 + Ready 100% 1 Type here to search BI a ? ) ENG 12:01 AM 20-09-2020