Suppose that the total holdings of banks in the U.S. were as follows:

required reserves = $45 million

excess reserves = $15 million

deposits= $750 million

loans = $600 million

Treasury bonds = $90 million

a)Draw a T-account and show that the balance sheet balances if these are the only assets and liabilities.

b)What happens to each of these values if banks reduce their holdings of Treasury bonds by $77.5 million and the central bank changes the reserve requirement ratio to 5%? Illustrate your answer with a new T-account.

c)Assume that people hold no currency. How much does the money supply change by if banks use their excess reserves to make loans?

d)Draw a new T-account to illustrate your answer to part (c)