MHM Bank currently has $750 million in transaction deposits on its balance sheet. The current reserve requirement is 8 percent, but the Federal Reserve is increasing this requirement to 10 percent.

a.

Show the balance sheet of the Federal Reserve and MHM Bank if MHM Bank converts all excess reserves to loans, but borrowers return only 50 percent of these funds to MHM Bank as transaction deposits. (Enter your answers in millions. Do not round intermediate calculations. Round your "Panel B" answers to 3 decimal places. (e.g., 32.161))

Panel A: Initial balance sheets

Federal Reserve Bank
Assets		Liabilities
(Click to select)Transaction depositsLoansReserve deposits at FedReserve accountsSecurities	$ million	(Click to select)Reserve deposits at FedTransaction depositsLoansSecuritiesReserve accounts	$ million

MHM Bank
Assets		Liabilities
(Click to select)LoansTransaction depositsSecuritiesReserve accountsReserve deposits at Fed	$ million	(Click to select)LoansSecuritiesReserve accountsTransaction depositsReserve deposits at Fed	$ million
(Click to select)Reserve accountsReserve deposits at FedLoansSecuritiesTransaction deposits	$ million

Panel B: Balance sheet after all changes

Federal Reserve Bank
Assets		Liabilities
(Click to select)SecuritiesReserve accountsLoansReserve deposits at FedTransaction deposits	$ million	(Click to select)Reserve accountsReserve deposits at FedLoansSecuritiesTransaction deposits	$ million

MHM Bank
Assets		Liabilities
(Click to select)Reserve accountsTransaction depositsLoansSecuritiesReserve deposits at Fed	$ million	(Click to select)Reserve deposits at FedReserve accountsLoansSecuritiesTransaction deposits	$ million
(Click to select)LoansTransaction depositsReserve deposits at FedSecuritiesReserve accounts	$ million

b.

Show the balance sheet of the Federal Reserve and MHM Bank if MHM Bank converts 80 percent of its excess reserves to loans and borrowers return 85 percent of these funds to MHM Bank as transaction deposits. (Enter your answers in millions. Do not round intermediate calculations. Round your "Panel B" answers to 3 decimal places. (e.g., 32.161))

Panel A: Initial balance sheets

Federal Reserve Bank
Assets		Liabilities
(Click to select)Reserve accountsLoansSecuritiesReserve deposits at FedTransaction deposits	$ million	(Click to select)Reserve deposits at FedLoansTransaction depositsSecuritiesReserve accounts	$ million

MHM Bank
Assets		Liabilities
(Click to select)Reserve deposits at FedSecuritiesTransaction depositsReserve accountsLoans	$ million	(Click to select)Transaction depositsReserve deposits at FedReserve accountsSecuritiesLoans	$ million
(Click to select)Transaction depositsReserve deposits at FedLoansSecuritiesReserve accounts	$ million

Panel B: Balance sheet after all changes

Federal Reserve Bank
Assets		Liabilities
(Click to select)SecuritiesLoansTransaction depositsReserve accountsReserve deposits at Fed	$ million	(Click to select)LoansReserve accountsTransaction depositsReserve deposits at FedSecurities	$ million

MHM Bank
Assets		Liabilities
(Click to select)LoansReserve deposits at FedSecuritiesTransaction depositsReserve accounts	$ million	(Click to select)SecuritiesReserve deposits at FedLoansTransaction depositsReserve accounts	$ million
(Click to select)Reserve accountsSecuritiesReserve deposits at FedLoansTransaction deposits	$ million