Bank Three currently has $650 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

b. Redo part (a) using a 10 percent reserve requirement.

Panel A: Initial Balance Sheets Federal Reserve Bank Assets Liabilities Securities million Reserve accounts million Bank Three Assets Liabilities Transaction deposits $ 650 million Loans Reserve deposits at Fed million million Panel B: Balance Sheet after All Changes Federal Reserve Bank Assets Liabilities Securities million Reserve accounts million Bank Three Assets Liabilities million Transaction deposits million Loans Reserve deposits at Fed million Panel A: Initial Balance Sheets Federal Reserve Bank Assets Liabilities Securities million Reserve accounts million Bank Three Assets Liabilities Transaction deposits million Loans Reserve deposits at Fed million million Panel B: Balance Sheet after All Changes Federal Reserve Bank Assets Liabilities Securities million Reserve accounts million Bank Threo Assets Liabilities Transaction deposits million Loans Reserve deposits at Fed million million