M&B3 3rd Edition by Dean Croushore

Exercise 1

Below is the balance sheet of a bank. The reserve requirement is 3 percent on the fi rst $30 million of transactions deposits and 10 percent on transactions deposits in excess of $30 million. The bank holds no required clearing balances.
Bank Balance Sheet (amounts in millions of dollars)
a Calculate the bank's excess reserves
b Suppose that the bank sells $5 million in securities to get new cash. Draw up the bank's balance sheet after this transaction. What are the bank's excess reserves
c Suppose that the bank makes a loan to a customer of an amount equal to the amount of its excess reserves from part b. Draw up the bank's balance sheet before the customer spends the proceeds of the loan. What are the bank's excess reserves
d Now suppose that the customer spends the proceeds of the loan. Draw up the bank's balance sheet, and calculate its excess reserves.