(a) If banks operate a 20 per cent liquidity ratio, by how much will credit expand if new deposits of 100 million are made by the customers of banks.

(b) Show the combined balance sheet (of additional liabilities and assets) for all banks (i) at the beginning, and (ii) at the end of this process.

(i) Initial effect

Liabilities m		Assets m
Initial new deposits	..	Initial additional liquid assets	..
		Initial additional credit	.
Total Initial new liabilities	.	Total initial new assets

(ii) Eventual effect

Liabilities m		Assets m
Eventual new deposits	..	Eventual additional liquid assets	..
		Eventual additional credit	.
Total eventual additional liabilities	.	Totoal eventual additional assets