Patriotic Bank currently has $800 million in transaction deposits on its balance
ID: 2655226 • Letter: P
Question
Patriotic Bank currently has $800 million in transaction deposits on its balance sheet. The current reserve requirement is 10 percent, but the Federal Reserve is decreasing this requirement to 8 percent.
a. Present the balance sheet (before and after changes) of both the Federal Reserve and Patriotic Bank if Patriotic Bank converts all excess reserves to loans, but borrowers return only 50 percent of these funds to Patriotic Bank as transaction deposits.
b. Present the balance sheet of both the Federal Reserve and Patriotic Bank if Patriotic Bank converts 75 percent of its excess reserves to loans and borrowers return 60 percent of these funds to Patriotic Bank as transaction deposits.
Explanation / Answer
Answer:
Patriotic Bank
Balance sheet extracts
Before Change
Funds :
Transaction deposit
$800
Million
Reserves :
$80
Million
Patriotic Bank
Balance sheet extracts
After Change
Funds :
Transaction deposit
$800
Million
Reserves :
$64
Million
Patriotic Bank
Balance sheet extracts
Before Change
Funds :
Transaction deposit
$800
Million
Reserves :
$80
Million
Patriotic Bank
Balance sheet extracts
After Change
Funds :
Transaction deposit
$800
Million
Reserves :
$64
Million