Banks in New Transylvania have a desired reserve ratio of 10 percent of deposits and no excess reserves. The currency drain ratio is 50 percent of deposits. Now suppose that the central bank increases the monetary base by $1,200 billion.

a. How much do the banks lend in the first round of the money creation process?

b. How much of the initial amount lent flows back to the banking system as new deposits?

c. How much of the initial amount lent does not return to the banks but is held as currency?

d. Why does a second round of lending occur?