3, MHM Bank currently has $700 million in transaction deposits on its balance sheet. The current reserve requirement is 8 percent, but the Federal Reserve is increasing this requirement to 10 percent. a. Show the balance sheet of the Federal Reserve and MHM Bank if MHM Bank converts all excess reserves to loans, but borrowers return only 60 percent of these funds to MHM Bank as transaction deposits. b. Show the balance sheet of the Federal Reserve and MHM Bank if MHM Bank converts 75 percent of its excess reserves to loans and borrowers return 80 percent of these funds to MHM Bank as transaction deposits.

ENGR.ECONOMIC ANALYSIS
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Chapter1: Making Economics Decisions
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Am. 398.

3, MHM Bank currently has $700 million in transaction deposits on its balance sheet. The current reserve
requirement is 8 percent, but the Federal Reserve is increasing this requirement to 10 percent.
a. Show the balance sheet of the Federal Reserve and MHM Bank if MHM Bank converts all excess
reserves to loans, but borrowers return only 60 percent of these funds to MHM Bank as transaction deposits.
b. Show the balance sheet of the Federal Reserve and MHM Bank if MHM Bank converts 75 percent of its
excess reserves to loans and borrowers return 80 percent of these funds to MHM Bank as transaction
deposits.
Transcribed Image Text:3, MHM Bank currently has $700 million in transaction deposits on its balance sheet. The current reserve requirement is 8 percent, but the Federal Reserve is increasing this requirement to 10 percent. a. Show the balance sheet of the Federal Reserve and MHM Bank if MHM Bank converts all excess reserves to loans, but borrowers return only 60 percent of these funds to MHM Bank as transaction deposits. b. Show the balance sheet of the Federal Reserve and MHM Bank if MHM Bank converts 75 percent of its excess reserves to loans and borrowers return 80 percent of these funds to MHM Bank as transaction deposits.
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