According to statistics provided by the Federal Reserve, total reserves of commercial banks currently equal $1.63 trillion. Required reserves are $130 billion, so excess reserves total approximately $1.50 trillion. The reserve requirement is 10 percent on transaction deposits, which include accounts that offer unlimited checking privileges, and there is no reserve requirement on time deposits. Non-transaction deposits currently amount to $2 trillion. Assume that changes in reserves held by banks affect transaction deposits only.
a. According to the information given in the problem, determine the total amount of transaction deposits held in commercial banks.
b. What are total deposits—transaction and nontransaction—at commercial banks?
c. What would happen to deposits if the Fed mandated that commercial banks eliminate their excess reserves?
d. How much would total required reserves be if total deposits remained at the level computed in part b, but the Fed imposed a 2 percent reserve requirement on nontransaction deposits and maintained the same 10 percent requirement on transaction deposits?
e. Would the existing reserves be sufficient to meet reserve requirements if the Fed imposed a 10 percent requirement for both transaction deposits and existing nontransaction deposits?

  • CreatedNovember 24, 2014
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