National Bank currently has $500 million in transaction deposits on its balance sheet. The current reserve requirement is 15 percent. The Federal Reserve decreases this requirement to 10 percent. Assume National Bank does not keep any excess reserve before and after the change in reserve ratio. National Bank is the only commercial bank in this economy. Show the balance sheet of the Federal Reserve and National Bank before and after the reserve requirement change if National Bank does not keep any excess reserve after the change in reserve ratio, and public deposit all the cash in National Bank as transaction deposits.

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Q: How much Excess Reserves does Second National Bank now have?

A: Checkable deposits = Demand deposits + Households deposit = $100,000 + $4,000 = $104,000

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Balance Sheet Regulations

A balance sheet is a financial statement that shows the position of a company's assets and liabilities on a specific date. The balance sheet is prepared after preparing the statement of profit and loss statement (income statement). The balance sheet and other financial statements differ in the sense that the balance sheet shows the financial position at any given point in time. In contrast, the other financial statements show the financial performance over a particular duration.