A.

PANEL A: Initial Balance Sheet

FEDERAL RESERVE BANK

Assets Amount Liabilities Amount
Securities $360 million Reserve Accounts $360 million

NATIONAL BANK
Assets Amount Liabilities Amount
Reserve deposits at Fed $360 million Transaction deposits $3,000 million
Loans $2,640

PANEL B: Balance Sheet after all changes

FEDERAL RESERVE BANK

Assets Amount Liabilities Amount
Securities $310 million Reserve Accounts $310 million

NATIONAL BANK
Assets Amount Liabilities Amount
Reserve deposits at Fed $310 million Transaction deposits $3,100 million
Loans $2,790

Working Notes:

New Initial Reserve Require= $3,000*10% = $300 million

Change in Transaction deposits = (1/ (0.1+ (1-0.50)))*($360 million – 300 million)

= $100 million

New Transaction deposits= Existing Transaction deposit + Change in transaction deposits

= $3,000 + $ 100 million

= $3,100 million

Reserve deposit at Fed= $3,100*10%

= $310 million

Loans= Transaction deposits – Reserve deposit at Fed

= $3,100 - $310

= $2,790 million
 B.

PANEL A: Initial Balance Sheet

FEDERAL RESERVE BANK

Assets Amount Liabilities Amount
Securities $360 million Reserve Accounts $360 million

NATIONAL BANK
Assets Amount Liabilities Amount
Reserve deposits at Fed $360 million Transaction deposits $3,000 million
Loans $2,640 million

PANEL B: Balance Sheet after all changes

FEDERAL RESERVE BANK

Assets Amount Liabilities Amount
Securities $310 million Reserve Accounts $310 million

NATIONAL BANK
Assets Amount Liabilities Amount
Reserve deposits at Fed $312.75 million Transaction deposits $3,127.50 million
Loans $2,814.75 million

Working Notes:

New Initial Reserve Require= $3,000*10% = $300 million

Change in Transaction deposits= (1/ (0.1+ (1-0.70)))*(360 – 300)*0.85

= $127.50 million

New Transaction deposits= Existing Transaction deposit + Change in transaction deposits

= $3,000 + $127.50

= $3,127.50 million

Reserve deposits at Fed = $3,127.50*10%

= $312.75 million

Loans = Transaction deposits – Reserve deposits at Fed

= $3,127.50 -$312.75

= $2,814.75 million