1. Suppose that you take $10,000 of currency you are holding at home in a safe and you deposit the $10,000 into your checking account deposit at Bank Y. Assume that Bank Y has no excess reserves at the time you make your deposit and that the required reserve ratio is 15 percent. Answer the following questions:
   1. Use a T-account to show the initial effect (meaning only what happens at the moment of deposit) of this transaction on Bank Y's balance sheet. You’ll be showing the change to both sides of the T-Account table, not a total amount.

Table 2a: Bank Y’s T-Account (initial deposit)

Assets	Liabilities
Reserves:	Deposits:
Loans:

2. Suppose that Bank Y makes the maximum loan they can from the funds you deposited in part a above. Use a T-account to show the initial effect (meaning only what happens at the moment of the loan creation) on Bank Y's balance sheet from granting the loan. You’ll be showing the change to both sides of the T-Account table, not a total amount.

Table 2b: Bank Y’s T-Account (loan creation)

Assets	Liabilities
Reserves:	Deposits:
Loans:

3. Now suppose that whoever took out the loan in question (b) deposits it in Bank Z. Show the effect of these transactions on the balance sheet of Bank Y and Bank Z. You’ll be showing the change to both sides, not a total amount.

Table 2c (part 1): Bank Y’s T-Account

Assets	Liabilities
Reserves:	Deposits:
Loans:

Assets	Liabilities
Reserves:	Deposits:
Loans:

Table 2c (part 2): Bank Z’s T-Account

4. What is the maximum increase in checking account deposits that can result from your $10,000 deposit?

5. What two assumptions need to hold to hit the maximum increase in checking account deposits?

6. Is this the same as the increase in money supply? Why or why not?

Answer rating: 100% (QA)

A Table 2a Bank Ys TAccount initial deposit Assets Liabilities Reserves... View the full answer