Bank Three currently has $600 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)LoansReserve accountsReserve deposits at FedTransaction depositsSecurities	$ million	(Click to select)LoansReserve accountsReserve deposits at FedTransaction depositsSecurities	$ million

Bank Three
Assets		Liabilities
(Click to select)Transaction depositsReserve deposits at FedReserve accountsLoansSecurities	$ million	(Click to select)Reserve accountsTransaction depositsSecuritiesReserve deposits at FedLoans	$ million
(Click to select)Reserve deposits at FedTransaction depositsSecuritiesLoansReserve accounts	million

Panel B: Balance Sheet after All Changes

Federal Reserve Bank
Assets		Liabilities
(Click to select)Reserve deposits at FedReserve accountsSecuritiesTransaction depositsLoans	$ million	(Click to select)Transaction depositsLoansReserve accountsSecuritiesReserve deposits at Fed	$ million

Bank Three
Assets		Liabilities
(Click to select)Reserve deposits at FedTransaction depositsSecuritiesReserve accountsLoans	$ million	(Click to select)Reserve deposits at FedReserve accountsTransaction depositsLoansSecurities	$ million
(Click to select)Reserve deposits at FedSecuritiesTransaction depositsReserve accountsLoans	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)LoansReserve accountsTransaction depositsReserve deposits at FedSecurities	$ million	(Click to select)SecuritiesLoansReserve accountsReserve deposits at FedTransaction deposits	$ million

Bank Three
Assets		Liabilities
(Click to select)Transaction depositsSecuritiesReserve deposits at FedLoansReserve accounts	$ million	(Click to select)Reserve deposits at FedSecuritiesTransaction depositsReserve accountsLoans	$ 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)Transaction depositsSecuritiesReserve accountsLoansReserve deposits at Fed	$ million	(Click to select)LoansSecuritiesTransaction depositsReserve deposits at FedReserve accounts	$ million

Bank Three
Assets		Liabilities
(Click to select)Reserve deposits at FedSecuritiesLoansReserve accountsTransaction deposits	$ million	(Click to select)SecuritiesReserve accountsReserve deposits at FedLoansTransaction deposits	$ million
(Click to select)Reserve accountsReserve deposits at FedSecuritiesTransaction depositsLoans	million