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A new immigrant arrives in Nova Scotia and opens a demand deposit account in the amount of $40,000 with Scotia Bank.
a. Assuming a target reserve ratio of 10% for all banks, and the willingness of the bank to make loan, use a T-account to show this transaction on Scotia Bank's balance sheet.
b. Complete the following table by showing the change in deposit, reserve and loan, assuming that the loan that was created by Scotia Bank became a deposit with TD Bank; and the loan that was created by TD became a deposit with CIBC and so on.
Bank DDeposits DReserves DLoans Scotia Bank $40,000 TD Bank CIBC Royal Bank National Bank
c. After infinite rounds of depositing and lending, what is the eventual total change in deposits?
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