An immigrant arrives in New Transylvania with $1,200 million. The $1,200 million is deposited in a bank A. All the banks in New Transylvania have a required reserve ratio of 20%.

a. Initially monetary base increases by $1,200 million in the bank A. Now the lending-borrowing transactions are taking place and the funds lent out from one bank are returned to the banking system in the form of deposits to another bank. Show how banks make two loans from the bank A to the bank B and from the bank B to the bank C. Assume that each bank has the same annual costs of $2 million, 8% annual interest rate on its loans and 3% annual interest rate on its deposits. Please calculate the net profit of each bank.

b. The interest rate and annual cost are the same as part a above, but Bank A wants to hold $60 million in excess reserve. What is its new net profit?

c. T he interest rate and annual cost are the same as part a above, what if It keeps the minimum cash reserves required by law of 20% and holds an additional 10% of minimum cash reserves. What is its new net profit?

d. How much would the total quantity of money increase in New Transylvania?

e. If the Fed conducts open market sales process, please show how it affects bank's reserve and its balance sheet.