Andrew deposits $50,000 in Royal Bank and Jeff borrows $30,000 from Royal Bank to buy a car from Mazda. Mazda deposits the $30,000 with CIBC. Assume that there is no currency drain and desired reserve ratio is 20%.

a)Reflect the above transactions in T-accounts for both banks

b)The Central Bank noticed that commercial Banks are expanding the money supply through deposit creation. Would the Central Bank Increase or decrease the desired reserve ratio? Explain

c)Assume that Royal bank found that they have a deficit amount of $10,000 in the LVTS (Large Value Transfer System), and decided to leave the balance as it is. If the target of the overnight rate is 1.25%. How much would Bank of Canada charge/pay to Royal bank?