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What would money supply be after bank 1 makes the loan

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Reference no: EM133627229

Imagine that you win $75,000 in the lottery (yay!). You decide to deposit all of it into "Bank #1". All banks are required to keep 10% as reserves.

  1. Draw the t-account for "Bank #1". Be sure to label deposits, reserves, and loans. What would money supply be after Bank #1 makes the loan?
  2. Suppose that Amy receives the loan from Bank #1 and spends all of it remodeling her kitchen. Amy pays Contractor Carrie and Carrie deposits the money into "Bank #2". Draw the t-account for Bank #2. Be sure to label deposits, reserves, and loans. What would money supply be after Bank #2 makes the loan?
  3. Suppose that Bill receives the loan from Bank #2 and spends all of it buying a boat. Bill pays Boatman Bob and Bob deposits the money into "Bank #3". Draw the t-account for Bank #3. Be sure to label deposits, reserves, and loans. What would money supply be after Bank #3 makes the loan?
  4. NOW, instead of drawing t-accounts again and again and again to determine how money banks can create with the initial $75,000, use the money multiplier to determine total money supply AND how much money the banks created.

Reference no: EM133627229

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