Suppose you deposit $4,000 in currency into your checking account at Bank of America.
Assume that Bank of America has no excess reserves at the time you make your deposit
and that the required reserve ratio is 10 percent.
1) Use a T-account to show the initial effect of this transaction on Bank of America's balance sheet.
2) Suppose that Bank of America makes the maximum loan they can from the funds you deposited. Use a T-account to show the initial effect on Bank of America's balance sheet from granting the loan. Also, include in this T-account the transaction from question (1).
3) What is the maximum increase in checking account deposits of the whole banking system
that can result from your $4,000 deposit? What is the maximum increase in the money supply? Are they equal? Why?