Question
Bank Three currently has $800 million in transaction deposits on its balance sheet. The Federal Reserve has currently set the reserve requirement at 10 percent
Bank Three currently has $800 million in transaction deposits on its balance sheet. The Federal Reserve has currently set the reserve requirement at 10 percent of transaction deposits. |
a. | If the Federal Reserve decreases the reserve requirement to 8 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)Transaction depositsLoansSecuritiesReserve deposits at FedReserve accounts | $ million | (Click to select)Reserve accountsLoansReserve deposits at FedTransaction depositsSecurities | $ million |
Bank Three | |||
Assets | Liabilities | ||
(Click to select)Reserve deposits at FedTransaction depositsLoansSecuritiesReserve accounts | $ million | (Click to select)SecuritiesReserve accountsLoansTransaction depositsReserve deposits at Fed | $ million |
(Click to select)LoansTransaction depositsReserve deposits at FedSecuritiesReserve accounts | million | ||
Panel B: Balance Sheet after All Changes |
Federal Reserve Bank | |||
Assets | Liabilities | ||
(Click to select)Transaction depositsReserve deposits at FedSecuritiesLoansReserve accounts | $ million | (Click to select)SecuritiesTransaction depositsReserve accountsReserve deposits at FedLoans | $ million |
Bank Three | |||
Assets | Liabilities | ||
(Click to select)LoansSecuritiesTransaction depositsReserve accountsReserve deposits at Fed | $ million | (Click to select)LoansTransaction depositsReserve deposits at FedSecuritiesReserve accounts | $ million |
(Click to select)Transaction depositsLoansReserve deposits at FedReserve accountsSecurities | million | ||
b. | Redo part (a) using a 16 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)LoansTransaction depositsSecuritiesReserve deposits at FedReserve accounts | $ million | (Click to select)LoansReserve accountsReserve deposits at FedTransaction depositsSecurities | $ million |
Bank Three | |||
Assets | Liabilities | ||
(Click to select)Reserve deposits at FedTransaction depositsLoansSecuritiesReserve accounts | $ million | (Click to select)Transaction depositsReserve accountsSecuritiesReserve deposits at FedLoans | $ million |
(Click to select)Transaction depositsReserve accountsLoansReserve deposits at FedSecurities | million | ||
Panel B: Balance Sheet after All Changes |
Federal Reserve Bank | |||
Assets | Liabilities | ||
(Click to select)SecuritiesLoansReserve deposits at FedReserve accountsTransaction deposits | $ million | (Click to select)SecuritiesReserve accountsTransaction depositsReserve deposits at FedLoans | $ million |
Bank Three | |||
Assets | Liabilities | ||
(Click to select)SecuritiesTransaction depositsLoansReserve accountsReserve deposits at Fed | $ million | (Click to select)Transaction depositsReserve deposits at FedLoansReserve accountsSecurities | $ million |
(Click to select)Reserve accountsTransaction depositsSecuritiesReserve deposits at FedLoans | million | ||
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