1. Money Creation in the banking system Bank of Arlington Assets Loans Securities Member bank reserves Other assets Total $1,000,000 200,000 200,000 100,000 FED and Monetary Policy $1,500,000 Liabilities Transaction deposits Ownership claims Total $1,000,000 500,000 $1,500,000 1. Suppose that the Bank of Arlington is just meeting its reserve requirement. The reserve requirement must be. 2. To be in a position to make loans, the Bank of Arlington must acquire some (required reserves/excess reserves). 3. If we assume that the reserve ratio is changed to 10 percent, the Bank of Arlington would have required reserves of. and excess reserves of 4. With a 10 percent reserve ratio the Bank of Arlington is in a position to make new loans totaling 5. Suppose the Bank of Arlington makes a loan of $100,000. The $100,000 is then spent so that it does not return to the Bank of Arlington but goes instead to the Bank of Cambridge. After this transaction, transactions deposits of the Bank of Arlington will be. will be .; its