In the following bank balance sheet, amounts are in millions of dollars. The required reserve ratio is 3% on the first $30 million of checkable deposits and 12% on any checkable deposits over $30 million.

(a) Calculate the banks excess reserves.

(b) Suppose that the bank sells $5 million in securities to an investor. The investor pays for the securities with a check that is cleared by the Fed. Show the banks balance sheet after this transaction. Calculate what the banks excess reserves are now.

(c) Suppose that the bank loans its excess reserves in part (b) to a local business. They do this by crediting the business deposit account with the bank by the amount of the excess reserves. Show the banks balance sheet after the loan has been made but before the business has spent the proceeds of the loan. Now what are the banks excess reserves?

(d) Suppose that the business spends the amount of the loan by writing a check. Revise the banks balance sheet and calculate its excess reserves after the check has cleared.

Assets Liabilities 180.00 $20.00 $18.90 Checkable deposits Reserves Loans Securities $150.00Net worth $31.10 total $200.00 total $200.00