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(b) Consolidated Bank is the only bank in the economy. The people in this economy have $80 million in money, and they deposit all their
(b) Consolidated Bank is the only bank in the economy. The people in this economy have $80 million in money, and they deposit all their money in Consolidated Bank. i. Consolidated Bank decides on a policy of holding 100% reserves. Draw a T-account for the bank. ii. Consolidated Bank is required to hold 8% of its existing $80 million as reserves, and to loan out the rest. Draw a Taccount for the bank alter this fn'st round of loans has been made. iii. Assume that Consolidated bank is part of a multibank system. How much will money supply increase with the 8% reserve? (30 marks)
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