Bank of Canada bought $5000 worth of bonds from Jack with a cheque. Jack deposited the cheque with CIBC. Assume that the required reserve ratio is 20%.

a) What will be the change in deposits on CIBC T account?

b) What is the total change in required reserves and excess reserves on CIBC T account?

c) Suppose that CIBC loaned out all the excess reserve to John. What will be the amount of the loan?

d) Suppose that John deposited the loan in Royal Bank. Royal Bank loaned out the excess reserves to Mark. What will be the amount of the loan to Mark?

e) If this process of "loans and deposits" continues for ever, how much is the change in the overall deposits in the banking system?

Answer rating: 100% (QA)

a Change in deposits on the CIBC T account will be equal to the amount that Jack depo... View the full answer