Suppose that the legal reserve ratio set by the Fed is 10 % and that the Far Bank in Fairdealing, Missouri, initially exhibits checkable deposit accounts of $250 and a reserve account of $70.

a.) A customer of Fair Bank deposits $100 inot her checking account. Fair Bank loans 80% of the deposit and places the rest in its reserves at the St. Louis Fed. How much does Fair Bank have in excess reserves after the deposit and loan?

b.) Place the figures below to represent changes in the accounts of Fair Bank and the Federal Reserves of St. Louis' balance sheets resulting from the deposit and loan.

$100 $10 $20 -$80 -$100 -$10 -$20 $80

Balance Sheet: Fair Bank Balance Sheet: Saint Louis Fed

Cash: Liabilities: Cash: Liabilities

Reserves: Net equity: Property:

Loans: Loans:

Property: