Bank Three currently has $700 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 $ million $ million Bank Three Assets Liabilities $ million $ million million

Panel B: Balance Sheet after All Changes Federal Reserve Bank Assets Liabilities $ million $ million Bank Three Assets Liabilities $ million $ million 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 $ million $ million Bank Three Assets Liabilities $ million $ million million

Panel B: Balance Sheet after All Changes Federal Reserve Bank Assets Liabilities $ million $ million Bank Three Assets Liabilities $ million $ million million