Suppose a banking system with the following balance sheet has no excess reserves. Assume that banks will make loans in the full amount of any excess reserves that they acquire and will immediately be able to eliminate loans from their portfolio to cover inadequate reserves
Assets l Liabilities
(In Millions) l (In Millions)
Total Reserves $30 l Transactions Accounts $300
Securities $ 90 l
Loans _180__ l
Total _______ l Total $300
(a) What is the reserve requirement?
(b) Suppose the reserve requirement is changed to 5 percent. Reconstruct the balance sheet of the the total banking system after all banks have fully utilized their lending capacity.