Question Details

(Solution Download) BSW Bank currently has $200 million in transaction deposits on its balance sheet. The Federal Reserv


 

 

 

 

 

 

 

BSW Bank currently has $200 million in transaction deposits on

 

its balance sheet. The Federal Reserve has currently set the

 

reserve requirement at 6 percent of transaction deposits.

 

 

 

 

 

 

 

 

 

a.

 

If the Federal Reserve decreases the reserve requirement to 4

 

percent, show the balance sheet of BSW and the Federal Reserve

 

System just before and after the full effect of the reserve

 

requirement change. Assume BSW withdraws all excess reserves and

 

gives out loans, and that borrowers eventually return all of these

 

funds to BSW in the form of transaction deposits. (Do not

 

round intermediate calculations. Enter your answers in millions

 

rounded to the nearest dollar amount.)

 

 

 

 

 

 

 

 

Panel A: Initial balance

 

sheets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Federal Reserve Bank

 

Assets

 

Liabilities

  (Click to

 

select)Reserve deposits at FedLoansTransaction depositsReserve

 

accountsSecurities

 

$  million

  (Click to

 

select)Reserve accountsLoansSecuritiesTransaction depositsReserve

 

deposits at Fed

 

$  million

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BSW Bank

 

Assets

 

Liabilities

  (Click to

 

select)Transaction depositsReserve deposits at

 

FedSecuritiesLoansReserve accounts

 

$  million

  (Click to

 

select)Transaction depositsSecuritiesReserve deposits at FedReserve

 

accountsLoans

 

$  million

  (Click to

 

select)SecuritiesReserve deposits at FedLoansTransaction

 

depositsReserve accounts

million

 

 

 

 

 

 

 

Panel B: Balance sheet after all

 

changes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Federal Reserve Bank

 

Assets

 

Liabilities

  (Click to

 

select)Reserve accountsTransaction depositsReserve deposits at

 

FedLoansSecurities

 

$  million

  (Click to

 

select)Reserve deposits at FedLoansSecuritiesTransaction

 

depositsReserve accounts

 

$  million

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BSW Bank

 

Assets

 

Liabilities

  (Click to

 

select)Reserve deposits at FedTransaction depositsReserve

 

accountsSecuritiesLoans

 

$  million

  (Click to

 

select)Transaction depositsLoansReserve accountsSecuritiesReserve

 

deposits at Fed

 

$  million

  (Click to

 

select)Reserve deposits at FedSecuritiesReserve accountsTransaction

 

depositsLoans

million

 

 

 

 

 

 

 

 

b.

 

Redo part (a) using a 8 percent reserve requirement. (Do

 

not round intermediate calculations. Enter your answers in millions

 

rounded to the nearest dollar amount.)

 

 

 

 

 

 

 

 

Panel A: Initial balance

 

sheets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Federal Reserve Bank

 

Assets

 

Liabilities

  (Click to

 

select)SecuritiesReserve deposits at FedTransaction depositsReserve

 

accountsLoans

 

$  million

  (Click to

 

select)LoansTransaction depositsSecuritiesReserve deposits at

 

FedReserve accounts

 

$  million

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BSW Bank

 

Assets

 

Liabilities

  (Click to

 

select)SecuritiesLoansTransaction depositsReserve deposits at

 

FedReserve accounts

 

$  million

  (Click to

 

select)Reserve accountsTransaction depositsSecuritiesReserve

 

deposits at FedLoans

 

$  million

  (Click to

 

select)Reserve accountsTransaction depositsSecuritiesLoansReserve

 

deposits at Fed

million

 

 

 

 

 

 

 

Panel B: Balance sheet after all

 

changes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Federal Reserve Bank

 

Assets

 

Liabilities

  (Click to

 

select)Transaction depositsReserve deposits at FedLoansReserve

 

accountsSecurities

 

$  million

  (Click to

 

select)LoansSecuritiesReserve deposits at FedTransaction

 

depositsReserve accounts

 

$  million

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BSW Bank

 

Assets

 

Liabilities

  (Click to

 

select)Reserve accountsReserve deposits at FedSecuritiesTransaction

 

depositsLoans

 

$  million

  (Click to

 

select)LoansTransaction depositsReserve accountsSecuritiesReserve

 

deposits at Fed

 

$  million

  (Click to

 

select)SecuritiesReserve accountsLoansTransaction depositsReserve

 

deposits at Fed

million

 


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