1. Chapter 29 Money and the Fed Eli receives $2,000 in cash for his birthday and deposits the money in his checking account at River Town Bank.

a) Use a T-account to illustrate how this deposit initially change the T-account of River Town Bank.

b) How does it affect the money supply?

c) Suppose the required reserve ratio is 5%, what is the maximum amount of loans can this bank make? If this bank only makes loans in the amount of $1,500, use a T-account to illustrate the banks position.

d) Assume that no bank holds excess reserves and that every time a bank makes a loan the whole amount is deposited in another bank, by how much could the money supply in the economy expand in total?