1. Suppose a banking system with the following balance sheet has no excess reserves. Assume that banks will make loans in the full amount of any excess reserves that they acquire and will immediately be able to eliminate loans from their portfolio to cover inadequate reserves. Assets Liabilities (in Billions) (in Billions) Transactions accounts $400 _-- _-- _-Tota1 (a) What is the required reserve ratio? (b) Suppose the reserve requirement is changed to 5 percent. Reconstruct the balance sheet of the total banking system after all banks have fully utilized their lending capacity. (c) By how much has the money supply changed as a result of the lower reserve requirement (step b)? (d) Suppose the Fed now buys $10 billion of securities directly from the banks. What will the banks' books look like after this purchase? (c) How much excess reserves do the banks have now? (1) By how much can the money supply now increase