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National Bank currently has $1,400 million in transaction deposits on its balance sheet. The current reserve requirement is 8 percent, but the Federal Reserve is decreasing this requirement to 6 percent.

a.

Show the balance sheet of the Federal Reserve and National Bank if National Bank converts all excess reserves to loans, but borrowers return only 50 percent of these funds to National Bank as transaction deposits. (Enter your answers in millions. Do not round intermediate calculations. Round your "Panel B" answers to 3 decimal places. (e.g., 32.161))

Panel A: Initial balance sheets

Federal Reserve Bank
Assets		Liabilities
(Click to select)SecuritiesReserve deposits at FedReserve accountsLoansTransaction deposits	$ million	(Click to select)Transaction depositsLoansSecuritiesReserve accountsReserve deposits at Fed	$ million

National Bank
Assets		Liabilities
(Click to select)SecuritiesReserve accountsReserve deposits at FedLoansTransaction deposits	$ million	(Click to select)Transaction depositsReserve accountsReserve deposits at FedSecuritiesLoans	$ million
(Click to select)LoansTransaction depositsSecuritiesReserve deposits at FedReserve accounts	$ million

Panel B: Balance sheet after all changes

Federal Reserve Bank
Assets		Liabilities
(Click to select)LoansReserve deposits at FedTransaction depositsReserve accountsSecurities	$ million	(Click to select)Reserve deposits at FedTransaction depositsSecuritiesLoansReserve accounts	$ million

National Bank
Assets		Liabilities
(Click to select)Reserve accountsTransaction depositsSecuritiesLoansReserve deposits at Fed	$ million	(Click to select)SecuritiesReserve accountsTransaction depositsLoansReserve deposits at Fed	$ million
(Click to select)Reserve deposits at FedReserve accountsTransaction depositsLoansSecurities	$ million

b.

Show the balance sheet of the Federal Reserve and National Bank if National Bank converts 90 percent of its excess reserves to loans and borrowers return 70 percent of these funds to National Bank as transaction deposits. (Enter your answers in millions. Do not round intermediate calculations. Round your "Panel B" answers to 3 decimal places. (e.g., 32.161))

Panel A: Initial balance sheets

Federal Reserve Bank
Assets		Liabilities
(select one)Securities, Transaction deposits, Loans, Reserve deposits at Fed, Reserve accounts	$ million	(select one)Securities, Transaction deposits, Loans, Reserve deposits at Fed, Reserve accounts	$ million

National Bank
Assets		Liabilities
(select one)Securities, Transaction deposits, Loans, Reserve deposits at Fed, Reserve accounts	$ million	(select one)Securities, Transaction deposits, Loans, Reserve deposits at Fed, Reserve accounts	$ million
(select one)Securities, Transaction deposits, Loans, Reserve deposits at Fed, Reserve accounts	$ million

Panel B: Balance sheet after all changes

Federal Reserve Bank
Assets		Liabilities
(select one)Securities, Transaction deposits, Loans, Reserve deposits at Fed, Reserve accounts	$ million	(select one)Securities, Transaction deposits, Loans, Reserve deposits at Fed, Reserve accounts	$ million

National Bank
Assets		Liabilities
(select one)Securities, Transaction deposits, Loans, Reserve deposits at Fed, Reserve accounts	$ million	(select one)Securities, Transaction deposits, Loans, Reserve deposits at Fed, Reserve accounts	$ million
(select one)Securities, Transaction deposits, Loans, Reserve deposits at Fed, Reserve accounts	$ million

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