Help with Part B

Bank Three currently has $500 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 5 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 tal using a 10 percent reserve requirement Panel A: Initial Balance Sheets Federal Reserve Bank Liabilities Assets 40 Securities 40 million million Reserve accounts Bank Three Assets Liabilities $ 40 million Transaction deposits $ 500 million Reserve deposits at Fed Loans 460 million Panel B: Balance Sheet after AR Changes Federal Reserve Bank Assets Liabilities Securities S 40 million 40 Reserve accounts million Bank Three Assets Liabilities Reserve deposits at Fed Transaction deposits s 667 x million 40 million 760 million Loans