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1)  Assume that in a country the total holdings of banks were as follows:

Amount in million dollars

Required Reserve


Excess Reserve






Treasury Bonds


Show that the balance sheet balances if these are the only assets and liabilities.

Assuming that people hold no currency, what happens to each of these values if the central bank changes the reserve requirement ratio to 2%, banks still want to hold the same percentage of excess reserves, and banks do not change their holdings of Treasury bonds? How much does the money supply change by?