1. The Fed sets a reserve requirement of 3% on deposits between $16 million and $122 million. If the bank holds $5 million dollars in US Treasury Securities and $2 million in excess reserves, compute the bank’s required reserve level and the quantity of loans this bank is able to make to the public.
2. What is the value of the money multiplier? [Money Multiplier = 1/Effective Reserve Ratio; Effective Reserve Ratio = (Required Reserves + Excess Reserves)/Deposits]
3. Suppose that the Fed increases the required reserve ratio to 5% on deposits between $16 million and $122 million. Further, the bank expands its holdings of US Treasury Securities to $6.5 million and holds $3 million in excess reserves. Calculate the bank’s new required reserve level and the quantity of new loans which this bank is able to make to the public, assuming no change in the quantity of deposits.
4. What is the new value of the money multiplier? Is the change in the reserve requirement an example of expansionary or contractionary monetary policy?

Assets		Liabilities
Loans		Deposits	$65 million
Required Reserves
Excess Reserves	$2 million
Treasury Securities	$5 million

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To solve this problem lets break it down into steps 1 Calculate the banks required reserve level and the quantity of loans the bank is able to make to ... View the full answer