Assume that the following data describe the current condition of the commercial banking system

Values

Total reserves: $30 Billion

Transaction deposits: $600 Billion

Cash held by public: $ 200 Billion

Required reserve ratio: 0.05

A. How large is the money supply (M1)?

B. Are the banks fully utilizing their lending capacity?

Banks currently have

Now assume that the public deposited another $30 billion in cash transactions accounts.

C. What would happen to the money supply initially ( before any lending takes place) ?

Assuming the $30 billion in cash is not new money in the system, M1 will ?

D. How much would the total lending capacity of the banking system be after this portfolio switch?

E. How large would the money supply be if the bank fully utilized their lending capacity?