1. The money multiplier in this excercise equals:

	a.	10
	b.	2
	c.	5
	d.	4

2. The potential deposit creation for the banking system in this problem equals:

	a.	40000
	b.	100000
	c.	19520
	d.	6400

This exercise shows how the multiplier process works Assume that all banks in the system lend all of their excess reserves, that the reserve ratio for all banks is 0.20 and that all loans are returned to the banking system in the form of transactions deposits. Use the information from the Balance Sheets in Table 13.2, Table 13.3, Table 13.4, and Table 13.5 to answer Questions 1-6. Table 13.2 Bank A - lnitial Balance Sheet Assets Liabilities Transaction accounts Required reserves Excess reserves Other assets $20,000 $100,000 80,000 $100,000 $100,000 Total Total Bill takes $10,000 out of his cookie jar and deposits it in a transactions account in Bank A. Fill in the blanks in Bank A's balance sheet in Table 13.3 after the deposit. (Remember that some of the deposit will show up in required reserves and the remainder will become part of excess reserves.) I Table 13.3. Bank A Balance Sheet After Bill's Deposit Assets Liabilities Required reserves Excess reserves S Transaction accounts $ Other assets 80,000 Total $ Total $ Now assume that Bank A lends all of its excess reserves to Pat, who spends the money on a car. The car dealership deposits the money in its transactions account in Bank B. Bank B's initial balance sheet is the same as Bank A's initial balance sheet Fill in the blanks in Bank B's baiance sheet after the car dealership makes its deposit 2. Table 13.4. Bank B - Balance Sheet After Car Dealership's Deposit Assets Liabilities Required reserves Excess reserves Other assets $ Transaction accounts $ 80,000 Total Total $ Now assume Bank B lends all of its excess reserves to Mary, who spends the money on college tuition. The university deposits the money in Bank C. Bank C's initial balance sheet is the same as Bank A's initial balance sheet, Fill in the blanks in Bank C's balance sheet after the university makes its deposit 3 Table 13.5. Bank C - Baliance Sheet After University's Deposit Assets Liabilities Required reserves Excess reserves Transaction accounts $ Other assets 80,000 Total S Total $ Add together the loans made by each bank because of the initial $10,000 deposit made by Bill 4. Bank A lent $ Bank B lent $ Bank C lent $ Total loans made so far $