Bank Three currently has $600 million in transaction deposits on its balance sheet. The Federal Reserve has currently set the reserve requirement at 10 percent of transaction deposits. a. If the Federal Reserve decreases the reserve requirement to 8 percent, show the balance sheet of Bank Three and the Federal Reserve System just before and after the full effect of the reserve requirement change. Assume Bank Three withdraws all excess reserves and gives out loans and that borrowers eventually return all of these funds to Bank Three in the form of transaction deposits. b. Redo part (a) using a 12 percent reserve requirement.
Bank Three currently has $600 million in transaction deposits on its balance sheet. The Federal Reserve has currently set the reserve requirement at 10 percent of transaction deposits. a. If the Federal Reserve decreases the reserve requirement to 8 percent, show the balance sheet of Bank Three and the Federal Reserve System just before and after the full effect of the reserve requirement change. Assume Bank Three withdraws all excess reserves and gives out loans and that borrowers eventually return all of these funds to Bank Three in the form of transaction deposits. b. Redo part (a) using a 12 percent reserve requirement.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Bank Three currently has $600 million in transaction deposits on its balance sheet. The Federal Reserve has currently set the re
requirement at 10 percent of transaction deposits.
serve
a. If the Federal Reserve decreases the reserve requirement to 8 percent, show the balance sheet of Bank Three and the Federal
Reserve System just before and after the full effect of the reserve requirement change. Assume Bank Three withdraws all excess
reserves and gives out loans and that borrowers eventually return all of these funds to Bank Three in the form of transaction deposits.
b. Redo part (a) using a 12 percent reserve requirement.
Complete this question by entering your answers in the tabs below.
Required A Required B
If the Federal Reserve decreases the reserve requirement to 8 percent, show the balance sheet of Bank Three and the Federal Reserve System
just before and after the full effect of the reserve requirement change. Assume Bank Three withdraws all excess reserves and gives out loans
and that borrowers eventually return all of these funds to Bank Three in the form of transaction deposits. (Do not round intermediate
calculations. Enter your answers in millions rounded to the nearest dollar amount.)
Show less a
Panel A: Initial Balance Sheets
Federal Reserve Bank
Assets
Liabilities
Securities
60 million
Reserve accounts
60 million
Bank Three
Assets
Liabilities
Loans
540 million
60 million
Transaction deposits
600 million
Reserve deposits at Fed
Panel B. Balance Sheet after All Changes
Federal Reserve Bank
Assets
Liabilities
Securities
60 million
Reserve accounts
60 milion
Bank Three
Assets
Liabilities
Loans
million
Transaction deposits
million
Reserve deposits at Fed
60 million
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