Assets

Vault Cash$1,000,000

Deposits at the Fed$1,500,000

Loans$3,500,000

Liabilities

Checking deposits$6,000,000

1. Use the balance sheet (above) of a commercial bank to answer this question.Assume a required reserve ratio of 20%.Calculate the bank's required and excess reserves.
2. Assuming that all other banks were initially fully loaned up and that all banks have the same required reserve ratio, calculate by which amount would the nation's money supply expand.