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Bank Three currently has $800 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. (Do not round intermediate calculations. Enter your answers in millions rounded to the nearest dollar amount.)

Panel A: Initial Balance Sheets

Federal Reserve Bank
Assets		Liabilities
(Click to select)SecuritiesReserve deposits at FedReserve accountsTransaction depositsLoans	$ million	(Click to select)Transaction depositsReserve accountsReserve deposits at FedSecuritiesLoans	$ million

Bank Three
Assets		Liabilities
(Click to select)Reserve deposits at FedReserve accountsSecuritiesLoansTransaction deposits	$ million	(Click to select)Reserve deposits at FedTransaction depositsLoansReserve accountsSecurities	$ million
(Click to select)Transaction depositsReserve deposits at FedReserve accountsSecuritiesLoans	million

Panel B: Balance Sheet after All Changes

Federal Reserve Bank
Assets		Liabilities
(Click to select)SecuritiesTransaction depositsLoansReserve deposits at FedReserve accounts	$ million	(Click to select)SecuritiesReserve accountsReserve deposits at FedTransaction depositsLoans	$ million

Bank Three
Assets		Liabilities
(Click to select)Reserve deposits at FedReserve accountsSecuritiesTransaction depositsLoans	$ million	(Click to select)Transaction depositsReserve deposits at FedSecuritiesReserve accountsLoans	$ million
(Click to select)LoansReserve accountsReserve deposits at FedTransaction depositsSecurities	million

b.	Redo part (a) using a 16 percent reserve requirement. (Do not round intermediate calculations. Enter your answers in millions rounded to the nearest dollar amount.)

Panel A: Initial Balance Sheets

Federal Reserve Bank
Assets		Liabilities
(Click to select)Reserve deposits at FedSecuritiesTransaction depositsLoansReserve accounts	$ million	(Click to select)Reserve deposits at FedLoansSecuritiesTransaction depositsReserve accounts	$ million

Bank Three
Assets		Liabilities
(Click to select)SecuritiesReserve deposits at FedReserve accountsLoansTransaction deposits	$ million	(Click to select)Transaction depositsLoansReserve deposits at FedReserve accountsSecurities	$ million
(Click to select)Transaction depositsReserve deposits at FedSecuritiesLoansReserve accounts	million

Panel B: Balance Sheet after All Changes

Federal Reserve Bank
Assets		Liabilities
(Click to select)SecuritiesReserve accountsReserve deposits at FedTransaction depositsLoans	$ million	(Click to select)Transaction depositsSecuritiesLoansReserve accountsReserve deposits at Fed	$ million

Bank Three
Assets		Liabilities
(Click to select)Transaction depositsSecuritiesReserve accountsReserve deposits at FedLoans	$ million	(Click to select)Transaction depositsReserve deposits at FedReserve accountsSecuritiesLoans	$ million
(Click to select)Transaction depositsReserve accountsLoansReserve deposits at FedSecurities	million

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