Balance Sheet for Princeton Bank(amount in millions of dollars)
Assets                  Liabilities+capital
Reserve 30             Transactions 300
Securities 140         Deposit 0
Loans 280             Nontransacations 140
Total assets 450    Deposits
Capital
Total liabilities+ Capital 450
Of Princeton Bank's reserves, $6million are required clearing balances held at the federal reserve bank of Philadelphia. Stratistics for the economy as a whole are
D=$2,000 billion, R= $200 billion, C/D=0.2=ratio of nontransaction deposits to transaction deposits
N/D=2.0=ratio of nontransaactions deposits to transcation deposits, MMF/D=1.6=ratio of retail money-market mutual funds to transaction deposits, Q=0.08=8%=required reserve ratio on transaction deposits=RR/D=ratio of required reserve to transaction deposits, RCB/D=0.02=2%=ratio of required clearing balances to transaction deposits

A. Calculate the vaules of N,D,C,R,MMF, and RCB using the fact that C/D=0.2 and C+D=M1.

B. Suppose that the FED raise the reserve requirement on transaction deposit to 0.18=18%. What happens to Princeton Bank's balance Sheet?Does it has excess reserves or is it short of reserves? Calculate the new M1 and M2 multipliers. What happens to MB, M1,M2,N,D,C,MMF,RCB, and R?

C. Suppose that instead of raising the reserve requirement as in part C, the FED sells $150 billion of securities in the open market, including $30 million to a customer of Princeton Bank. What happen to Princeton Bank's balance sheet? Does it have excess reserve, or is it short of reserves? Calculate the new M1, M2,N,D,C,MMF,RCB, and R?