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(2). Suppose the Bank of Canada lends $1 million to the First National Bank. (a) For the initial effect of the loans, show what happens
(2). Suppose the Bank of Canada lends $1 million to the First National Bank. (a) For the initial effect of the loans, show what happens to the Bank of Canada and the banking system using T-accounts. (2 points) (b) Suppose the commercial banks in the banking system do not hold excess reserve (i.e., all excess reserves are loaned out). Through multiple deposit creation, eventually the increase in reserves of the banking system will support $10 million in new loans and chequable deposits. Using T-accounts, show the final effect of the multiple deposit creation for the Bank of Canada and the banking system. (3 points)
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