Transaction deposits on its balance sheet

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Reference no: EM13808102

National Bank currently has $500 million in transaction deposits on its balance sheet. The current reserve requirement is 8 percent, but the Federal Reserve is increasing 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 30 percent of these funds to National Bank as transaction deposits. What will be :

1) The new amount of transaction deposits

2) The new amount of reserve deposits at the fed

3) The new amount of loans

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.

1) The new amount of transaction deposits

2) The new amount of reserve deposits at the fed

3) The new amount of loans

Reference no: EM13808102

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