MHM Bank currently has $300 million deposits on its balance sheet.

a. The Fed reduces the reserve requirement ratio from 11 percent to 9 percent. MHM

Bank converts 80 percent of its excess reserves into loans and borrowers deposit 85 percent of their funds with MHM Bank. Calculate the change in money supply, the new level of reserves, and the increase or decrease (select one) in loans, respectively, of MHM Bank. Numerically demonstrate the reduction in loan availability due to the drains in the financial system!

8a. b.

Assume now that the Fed increases the reserve requirement ratio from 11 percent to 12 percent, and there is no drain in the financial system. Calculate the change in money supply, the new level of reserves, and the increase or decrease (select one) in loans, respectively, of MHM Bank.

Assume now that the Fed purchases $100 million Treasury securities and keeps the reserve requirement ratio at 11 percent. MHM Bank converts 90 percent of its excess reserves into loans and borrowers hold 5% of their cash idle. Calculate the change in money supply, the new level of reserves, and the increase or decrease (select one) in loans, respectively, of MHM Bank.