Has the money supply been changed by her deposit

Reference no: EM13221997

Suppose that a lottery winner deposit $20 million in cash into her transactions accounts at the Bank of America (B of A). Assume a reserve requirement of 25% and no excess reserves in the banking system prior to deposit

(a) Use step 1 in the T-account below to show how her deposit affect
the balance sheet at B of A? 20,000,000

(b) Has the money supply been changed by her deposit? No

(c )Use step 2 below to show the changes at B of A after the bank fully uses its new lending capacity.

(d) How the money supply been change in step 2? Yes

(e) In step 3 the new borrower(s) writes a check for the amount of the loan in step 2. That check is deposited at another bank, and bank B of A pays the other bank when the check clears. What does the B of A balance sheet look like?

(f) After the entire bank system uses the lending capacity of the intitial ($20 million) deposit, by how much will the following have changed?

Reference no: EM13221997

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