National Bank currently has $3,000 million in transaction deposits on its balance sheet. The current reserve requirement is 12 percent, but the Federal Reserve is decreasing this requirement to 10 percent.

a.

Show the balance sheet of the Federal Reserve and National Bank if National Bank converts all excess reserves to loans, but borrowers return only 50 percent of these funds to National 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)SecuritiesTransaction depositsReserve accountsReserve deposits at FedLoans	$ million	(Click to select)Reserve deposits at FedTransaction depositsReserve accountsSecuritiesLoans	$ million

National Bank
Assets		Liabilities
(Click to select)SecuritiesLoansReserve deposits at FedReserve accountsTransaction deposits	$ million	(Click to select)SecuritiesLoansTransaction depositsReserve accountsReserve deposits at Fed	$ million
(Click to select)LoansSecuritiesTransaction depositsReserve deposits at FedReserve accounts	$ million

Panel B: Balance sheet after all changes

Federal Reserve Bank
Assets		Liabilities
(Click to select)Reserve accountsLoansReserve deposits at FedSecuritiesTransaction deposits	$ million	(Click to select)LoansSecuritiesReserve deposits at FedTransaction depositsReserve accounts	$ million

National Bank
Assets		Liabilities
(Click to select)SecuritiesReserve accountsReserve deposits at FedLoansTransaction deposits	$ million	(Click to select)Transaction depositsLoansSecuritiesReserve accountsReserve deposits at Fed	$ million
(Click to select)SecuritiesReserve deposits at FedReserve accountsTransaction depositsLoans	$ million

b.

Show the balance sheet of the Federal Reserve and National Bank if National Bank converts 85 percent of its excess reserves to loans and borrowers return 70 percent of these funds to National 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)SecuritiesReserve accountsTransaction depositsReserve deposits at FedLoans	$ million	(Click to select)Transaction depositsLoansReserve accountsSecuritiesReserve deposits at Fed	$ million

National Bank
Assets		Liabilities
(Click to select)Reserve deposits at FedTransaction depositsLoansReserve accountsSecurities	$ million	(Click to select)Reserve deposits at FedLoansReserve accountsTransaction depositsSecurities	$ million
(Click to select)Transaction depositsSecuritiesReserve deposits at FedLoansReserve accounts	$ million

Panel B: Balance sheet after all changes

Federal Reserve Bank
Assets		Liabilities
(Click to select)Reserve accountsReserve deposits at FedTransaction depositsSecuritiesLoans	$ million	(Click to select)SecuritiesTransaction depositsReserve accountsReserve deposits at FedLoans	$ million

National Bank
Assets		Liabilities
(Click to select)SecuritiesTransaction depositsReserve accountsLoansReserve deposits at Fed	$ million	(Click to select)LoansReserve deposits at FedTransaction depositsReserve accountsSecurities	$ million
(Click to select)Reserve accountsTransaction depositsLoansReserve deposits at FedSecurities	$ million

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Worksheet

Difficulty: Hard