Reference no: EM132182266

Question - National Bank currently has $600 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 70 percent of its excess reserves to loans and borrowers return 60 percent of these funds to National Bank as transaction deposits.