In: Finance
National Bank currently has $450 million in transaction deposits
on its balance sheet. The current reserve requirement is 12
percent, but the Federal Reserve is decreasing this requirement to
10 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.
b. Show the balance sheet of the Federal Reserve
and National Bank if National Bank converts 75 percent of its
excess reserves to loans and borrowers return 60 percent of these
funds to National Bank as transaction deposits.
Ans (a)
The balance sheet of the Federal Reserve and National Bank when National Bank converts all excess reserve to loans and borrower return 50% of these funds to National Bank as transaction deposits:
Ans (b)
The balance sheet of the Federal Reserve and National Bank when National Bank converts 75% of the excess reserve to loans and borrower return 60% of these funds to National Bank as transaction deposits: