Suppose that the First National Bank has the following balance sheet position and that the required reserve ratio is 20 percent. Assets Liabilities Reserves $25 million Deposits $100 million Loans $75 million Bank Capital $10 million Securities $10 million

1. If the bank suffers the deposit outflow of $6 million, what will its balance now look like? Show this by filling in the amounts in the following balance sheet: Assets Liabilities Reserves Deposits Loans Bank Capital Securities

b. Suppose now the bank is hit with another $4 million deposit outflow. What will its balance sheet position look like now? Assets Liabilities Reserves Deposits Loans Bank Capital Securities a) Must the bank make an adjustment in its balance sheet? b) Why or why not?

c. After selling off the securities to meet its reserve requirements, what will its balance sheet look like? Assets Liabilities Reserves Deposits Loans Bank Capital Securities