A chartered bank has $1 million in deposits and $40,000 in required reserves. Its excess reserves are initially zero.

1. Determine the bank's reserve ratio. (1)
2. If an additional $100,000 is deposited in the bank, determine the consequent increases in both its required reserves and excess reserves. (4)
3. Use a balance sheet to show the potential increase of the money supply which the bank could produce. (5)

1. A chartered bank has $1 million in deposits and $40,000 in required reserves. Its excess reserves are initially zero. a. Determine the bank's reserve ratio. (1) b. If an additional $100,000 is deposited in the bank, determine the consequent increases in both its required reserves and excess reserves. (4) c. Use a balance sheet to show the potential increase of the money supply which the bank could produce