Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Bank Three currently has $900 million in transaction deposits on its balance sheet. The Federal Reserve has currently set the reserve requirement at 8 percent
Bank Three currently has $900 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 6 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. b. Redo part (a) using a 10 percent reserve requirement. X Answer is not complete. Complete this question by entering your answers in the tabs below. Required A Required B If the Federal Reserve decreases the reserve requirement to 6 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.) Show less Panel A: Initial Balance Sheets Federal Reserve Bank Assets Liabilities Securities 72 million Reserve accounts 72 million Bank Three Assets Liabilities Loans 828 million Transaction deposits $ 900 million Reserve deposits at Fed 72 million Panel B: Balance Sheet after All Changes Federal Reserve Bank Assets Liabilities Securities 45 x million Reserve accounts 45 x million Bank Three Assets Liabilities Loans 1,128 million Transaction deposits million Reserve deposits at Fed 72 million 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 Securities 90 x million Reserve accounts 90 x million Bank Three Assets Liabilities $ 810 x million Transaction deposits $ 900 million 90 x million Panel B: Balance Sheet after All Changes Federal Reserve Bank Assets Liabilities $ 1,410 x million million Bank Three Assets Liabilities million million million
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started