Assume that the required resets c ratio is 20% and a consumer deposits $2,000 in

Question

Assume that the required resets c ratio is 20% and a consumer deposits $2,000 in a hank and that this currency is added to the hank's reserves. Assume thai the hank had no excess reserves before the deposit. a. Show the hank's balance sheet changes (i.e. use T-accounts) Is there a change in the money supply at this point? If yes. hem much? b. How much docs the money supply change after the money supply process (involving the whole hanking sector and the general public) is completed when this bank makes a Iom with its excess reserves?

Explanation / Answer

Deposit = $2000

reserve requirement = 20%

Total deposits left = (2000 - 400) = $1600

In case, bank loans out then

multiplier = 1/0.20 = 5

Changes in money supply to 5*2000 = $10,000

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