1. Imagine that Bank A receives additional deposits of $100 million and that all the individual banks retain their current required reserve of 20 percent. In other words, they comply with the required ratio.

A) Use and show T-Account, and show how much will the bank choose to lend out from this deposit?

B) Us T-account and show how much of these latest deposits will be lent out by Bank B when the money is

borrowed and deposited at Bank B?

C) What will happen to Bank B's liabilities when the money that is lent out is spent and the recipients of it deposits it in the bank accounts?

D) By how much will the money supply eventually have risen in the banking system, assuming that none of the additional liquidity is held outside the banking sector? (Show process)

E) What is the size of the bank multiplier?

2.A) From Question 1 above in this section, if Bank A prefers to hold an additional 10% from this latest deposit, would Bank A be able to lend out more or less? (show your process).

B) In your own words, how is the required reserve related to the money supply in the banking system?