Question
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
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 4 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)Reserve deposits at FedLoansTransaction depositsReserve accountsSecurities | $ million | (Click to select)SecuritiesLoansReserve accountsTransaction depositsReserve deposits at Fed | $ million |
Bank Three | |||
Assets | Liabilities | ||
(Click to select)Reserve accountsLoansReserve deposits at FedSecuritiesTransaction deposits | $ million | (Click to select)Reserve accountsTransaction depositsSecuritiesLoansReserve deposits at Fed | $ million |
(Click to select)Reserve deposits at FedTransaction depositsLoansReserve accountsSecurities | million | ||
Panel B: Balance Sheet after All Changes |
Federal Reserve Bank | |||
Assets | Liabilities | ||
(Click to select)Transaction depositsLoansReserve deposits at FedReserve accountsSecurities | $ million | (Click to select)SecuritiesLoansTransaction depositsReserve accountsReserve deposits at Fed | $ million |
Bank Three | |||
Assets | Liabilities | ||
(Click to select)Transaction depositsSecuritiesReserve deposits at FedReserve accountsLoans | $ million | (Click to select)LoansTransaction depositsSecuritiesReserve accountsReserve deposits at Fed | $ million |
(Click to select)Reserve deposits at FedReserve accountsLoansSecuritiesTransaction deposits | million | ||
b. | Redo part (a) using a 8 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)Reserve deposits at FedSecuritiesReserve accountsLoansTransaction deposits | $ million | (Click to select)Reserve accountsLoansReserve deposits at FedTransaction depositsSecurities | $ million |
Bank Three | |||
Assets | Liabilities | ||
(Click to select)Reserve deposits at FedReserve accountsLoansSecuritiesTransaction deposits | $ million | (Click to select)Reserve deposits at FedReserve accountsTransaction depositsLoansSecurities | $ million |
(Click to select)LoansReserve accountsTransaction depositsReserve deposits at FedSecurities | million | ||
Panel B: Balance Sheet after All Changes |
Federal Reserve Bank | |||
Assets | Liabilities | ||
(Click to select)LoansReserve accountsReserve deposits at FedSecuritiesTransaction deposits | $ million | (Click to select)Reserve deposits at FedTransaction depositsLoansSecuritiesReserve accounts | $ million |
Bank Three | |||
Assets | Liabilities | ||
(Click to select)Reserve deposits at FedLoansTransaction depositsSecuritiesReserve accounts | $ million | (Click to select)Reserve accountsLoansReserve deposits at FedSecuritiesTransaction deposits | $ million |
(Click to select)LoansReserve deposits at FedSecuritiesTransaction depositsReserve accounts | million | ||
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