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? 

1) Imagine that Kristy deposits $10,000 of currency into her checking account deposit at Bank A and that the required reserve ratio is 20%. As a result of Kristy's deposit,

a) Bank A's reserves immediately increased by $______.

b) Bank A's required reserves increased by $______.

c) Bank A's excess reserves increased by $______.

d) Bank A can make a maximum new loan of $______.

e) Checking account deposits in the banking system as a whole (including the original deposit) could eventually increase up to a maximum of $______.

2) Refer to the table above. Suppose a transaction changes a bank's balance sheet as indicated in the T-account, and the required reserve ratio is 10 percent. As a result of the transaction, the bank has excess reserves of $______.

3) Suppose a bank has $100 million in checking account deposits with no excess reserves and the required reserve ratio is 20 percent. If the Federal Reserve reduces the required reserve ratio to 15 percent, then the bank will now have excess reserves of $______.

Suppose that Mr Rich withdraws $5 million from his transactions account at the bank of america and holds the money. Assume a reserve requirement of 25 percent and no excess reserves in the banking system prior to this withdrawal. How will the money supply be affected by this transaction? What is the ultimate change in deposits, loans, and reserves in the banking system? Explain in detail.

You purchase computer software from a company in Chicago, Illinois that banks with Wells Fargo. You write a check on your Bank of America account in Tallahassee, Florida for $175.00 to pay for the transaction. Which statement below is accurate with regard to the impact on both banks' balance sheets?