Q.1

Bank Rosemary currently has $800 million in transaction deposits on its balance sheet. The Federal Reserve has currently set the reserve requirement at 11% of transaction deposits. If the Federal Reserve increases the reserve requirement to 12%, calculate the change in bank deposits. Show the balance sheet of Bank Rosemary and the Federal Reserve System just before and after the full effect of the reserve requirement change. Assume Bank Rosemary withdraws all excess reserves and gives out loans and that borrowers eventually return all of these funds to Bank Rosemary in the form of transaction deposits.

Q2.

What functions do the 12 Federal Reserve Banks perform?