You have been asked to assess the impact of possible changes inreserve requirement components on the dollar amount of reservesrequired. Assume the reserve percentages are currently set at 2percent on the first $50 million of traction account amounts; 4percent on the second $50 million; and 10 percent on transactionamounts over $100 million. The First National Bank has transactionaccount balances of $100 million, while the Second National Bank’stransaction balances are $150 million and the Third National Bank’stransaction balances are $250 million.

a. Determine the dollar amounts of required reserves for each ofthe three banks.

b. Calculate the percentage of reserves to total transactionsaccounts for each of the three banks.

c. The Central Bank wants to slow the economy by raising thereserve requirements for member banks. To do so, the reservepercentages will be increased to 12 percent on transaction balancesabove $100 million. Simultaneously, the 2 percent rate will applyon the first $25 million. Calculate the reserve requirement amountfor each of the three banks after these changes have takenplace.

d. Show the dollar amount of changes in reserve requirementamounts for each bank. Calculate the percentage of reserverequirement amounts to transaction account balances for eachbank.

e. Which of the two reserve requirement changes discussed in (c)causes the greatest impact on the dollar amount of reserves for allthree of the banks?

f. Now assume that you could either: (1) lower the transactionsaccount amount for the lowest category from $50 million down to $25million, or (2) increase the reserve percentage from 10 percent to12 percent on transactions account amounts over $200 million. Whichchoice would you recommend if you were trying to achieve a moderateslowing of economic activity?