Suppose Ginger deposits $12,000 in cash into her checking account at the Bank of Skidoo. The Bank of Skidoo has no excess reserves and is subject to a 4 percent required reserve ratio.
a. Show this transaction in a T-account for the Bank of Skidoo.
b. Assume the Bank of Skidoo makes the maximum loan possible from Ginger’s deposit to Thurston and show this transaction in a new T-account.
c. Thurston decides to use the money he borrowed to purchase a sail boat. He writes a check for the entire loan amount to Gilligan’s Seagoing Vessels, which deposits the check in its bank, the Paradise Bank of Kona, Hawaii. When the check clears, the Skidoo Bank transfers the funds to the Paradise Bank. Show these transactions in a new T-account for the Skidoo Bank and in a T-account for the Paradise Bank.
d. What is the maximum amount of deposits that can be created from Ginger’s initial deposit?
e. What is the maximum amount of loans that can be created from Ginger’s initial deposit?