Bank Three currently has $550 million in transaction deposits on its balance sheet. The Federal Reserve has currently set the reserve requirement at 8 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 FedTransaction depositsLoansSecuritiesReserve accounts	$ million	(Click to select)Reserve accountsReserve deposits at FedTransaction depositsLoansSecurities	$ million

Bank Three
Assets		Liabilities
(Click to select)Reserve accountsLoansSecuritiesReserve deposits at FedTransaction deposits	$ million	(Click to select)Reserve accountsSecuritiesReserve deposits at FedLoansTransaction deposits	$ million
(Click to select)Reserve accountsLoansReserve deposits at FedSecuritiesTransaction deposits	million

Panel B: Balance Sheet after All Changes

Federal Reserve Bank
Assets		Liabilities
(Click to select)Reserve accountsReserve deposits at FedSecuritiesTransaction depositsLoans	$ million	(Click to select)Reserve deposits at FedLoansSecuritiesReserve accountsTransaction deposits	$ million

Bank Three
Assets		Liabilities
(Click to select)Reserve accountsTransaction depositsSecuritiesReserve deposits at FedLoans	$ million	(Click to select)Transaction depositsReserve deposits at FedLoansSecuritiesReserve accounts	$ million
(Click to select)LoansTransaction depositsSecuritiesReserve accountsReserve deposits at Fed	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)SecuritiesReserve accountsLoansTransaction depositsReserve deposits at Fed	$ million	(Click to select)Transaction depositsReserve accountsSecuritiesLoansReserve deposits at Fed	$ million

Bank Three
Assets		Liabilities
(Click to select)Reserve accountsLoansReserve deposits at FedTransaction depositsSecurities	$ million	(Click to select)LoansSecuritiesReserve accountsTransaction depositsReserve deposits at Fed	$ million
(Click to select)LoansReserve deposits at FedSecuritiesReserve accountsTransaction deposits	million

Panel B: Balance Sheet after All Changes

Federal Reserve Bank
Assets		Liabilities
(Click to select)Reserve deposits at FedLoansTransaction depositsSecuritiesReserve accounts	$ million	(Click to select)Reserve accountsTransaction depositsReserve deposits at FedLoansSecurities	$ million

Bank Three
Assets		Liabilities
(Click to select)Reserve deposits at FedReserve accountsSecuritiesLoansTransaction deposits	$ million	(Click to select)SecuritiesTransaction depositsReserve deposits at FedReserve accountsLoans	$ million
(Click to select)LoansReserve deposits at FedTransaction depositsSecuritiesReserve accounts	million