Bank Three currently has $400 million in transaction deposits on its balance sheet. The Federal Reserve has currently set the reserve requirement at 6 percent of transaction deposits.

a.

If the Federal Reserve decreases the reserve requirement to 5 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. (Do not round intermediate calculations. Enter your answers in millions rounded to the nearest dollar amount.)

Panel A: Initial Balance Sheets

Federal Reserve Bank
Assets		Liabilities
(Click to select)Transaction depositsSecuritiesReserve accountsLoansReserve deposits at Fed	$ million	(Click to select)SecuritiesLoansReserve deposits at FedTransaction depositsReserve accounts	$ million

Bank Three
Assets		Liabilities
(Click to select)Reserve deposits at FedReserve accountsSecuritiesLoansTransaction deposits	$ million	(Click to select)LoansTransaction depositsSecuritiesReserve deposits at FedReserve accounts	$ million
(Click to select)SecuritiesReserve accountsLoansReserve deposits at FedTransaction deposits	million

Panel B: Balance Sheet after All Changes

Federal Reserve Bank
Assets		Liabilities
(Click to select)Reserve deposits at FedTransaction depositsSecuritiesReserve accountsLoans	$ million	(Click to select)Reserve deposits at FedLoansSecuritiesReserve accountsTransaction deposits	$ million

Bank Three
Assets		Liabilities
(Click to select)LoansTransaction depositsReserve deposits at FedReserve accountsSecurities	$ million	(Click to select)Reserve accountsLoansReserve deposits at FedTransaction depositsSecurities	$ million
(Click to select)Reserve deposits at FedTransaction depositsLoansSecuritiesReserve accounts	million

b.	Redo part (a) using a 10 percent reserve requirement. (Do not round intermediate calculations. Enter your answers in millions rounded to the nearest dollar amount.)

Panel A: Initial Balance Sheets

Federal Reserve Bank
Assets		Liabilities
(Click to select)Transaction depositsLoansReserve deposits at FedSecuritiesReserve accounts	$ million	(Click to select)LoansSecuritiesTransaction depositsReserve accountsReserve deposits at Fed	$ million

Bank Three
Assets		Liabilities
(Click to select)LoansReserve deposits at FedReserve accountsSecuritiesTransaction deposits	$ million	(Click to select)Reserve accountsSecuritiesReserve deposits at FedLoansTransaction deposits	$ million
(Click to select)Reserve deposits at FedSecuritiesTransaction depositsReserve accountsLoans	million

Panel B: Balance Sheet after All Changes

Federal Reserve Bank
Assets		Liabilities
(Click to select)LoansReserve accountsTransaction depositsSecuritiesReserve deposits at Fed	$ million	(Click to select)Transaction depositsSecuritiesLoansReserve deposits at FedReserve accounts	$ million

Bank Three
Assets		Liabilities
(Click to select)Reserve deposits at FedReserve accountsTransaction depositsSecuritiesLoans	$ million	(Click to select)Reserve deposits at FedTransaction depositsReserve accountsLoansSecurities	$ million
(Click to select)SecuritiesReserve deposits at FedTransaction depositsReserve accountsLoans	million