a. Use a T-account to show the initial effect of this transaction on Bank of America's balance sheet.
b. 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 the question(a.).
c. Now, suppose that whoever took out the loan in question (b)writes a check for this amount and that the person receiving the check deposits it in the Bank of Boston. Show the effect of these transactions on Bank of America's balance sheet and Bank of Boston after the check has been cleared. On the T-account for Bank of America, including the transactions from questions (a) and(b).
d. What is the maximum increase in checking account deposits that can result from your $4,000 deposit? What is the maximum increase in the money supply? Explain.
a. Use a T-account to show the initial effect of this transaction on Bank of America's balance sheet.
b. 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 the question(a.).
c. Now, suppose that whoever took out the loan in question (b)writes a check for this amount and that the person receiving the check deposits it in the Bank of Boston. Show the effect of these transactions on Bank of America's balance sheet and Bank of Boston after the check has been cleared. On the T-account for Bank of America, including the transactions from questions (a) and(b).
d. What is the maximum increase in checking account deposits that can result from your $4,000 deposit? What is the maximum increase in the money supply? Explain.
Related textbook solutions
Related questions
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 $______.
| Assets | Liabilities |
| Reserves +$4000 | Deposits +$4000 |
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 $______.
