1. The monetary base is $1,000,000. The public always holds half its money supply as currency and half as deposits. Banks hold 20% of deposits in the form of reserves. Starting with the initial creation of the mone tary base that accompanies the purchase by the central bank of $1,000,000 worth of securities from the public, show the consolidated balance sheet of the banks after they first receive deposits, after a first round of loans and redeposits, and after a second round of loans and redeposits. (Hint: Don’t forget that the public keeps only half its money in the form of bank deposits.)

Show the balance sheets of the central bank, the banking system, and the public at the end of the pro cess of multiple expansion of loans and deposits.

What is the final value of the money supply?