Fractional Reserve Banking Suppose there is initially $10, 000 of currency in the economy. In this economy households will deposit all their currency in a bank. Suppose banks hold 15% of deposits in reserve, making loans with the rest. 1) Fill out the balance sheets I First Bank's Balance Sheet I Assets Liabilities Reserves: Deposits: I Loans: I Firstbank will make in loans. The money supply now equals Depositors have in demand deposits. Borrowers hold in currency. Suppose the new borrowers deposit all their money in Second Bank. Second Bank's Balance Sheet Liabilities Deposits: Second bank will make in loans. The money supply now equals Depositors have in demand deposits. Borrowers hold in currency. Suppose the new borrowers deposit all their money in Third Bank. I Third Bank's Balance Sheet | I Assets Liabilities I Reserves: Deposits: Loans: Third bank will make in loans. The money supply now equals Depositors have in demand deposits. Borrowers hold in currency. 2) If this process continues with borrowers depositing money in a different bank, how much money will the economy end up with? 3) Let's say that banks start holding more deposits as reserves. This raises the reserve- deposit ratio to W = 0.175. Households begin to keep some of their money as currency and the currencydeposit ratio goes from 0 to or = 0.5. What will the total money supply be now