Imagine that you win $75,000 in the lottery. You decide to deposit all of it into "Bank #1".  All banks are required to keep 10% as reserves.

1. Draw the t-account for "Bank #1".  Be sure to label deposits, reserves, and loans.  What would money supply be after Bank #1 makes the loan?
2. Suppose that Amy receives the loan from Bank #1 and spends all of it remodeling her kitchen.  Amy pays Contractor Carrie and Carrie deposits the money into "Bank #2".  Draw the t-account for Bank #2.  Be sure to label deposits, reserves, and loans.  What would money supply be after Bank #2 makes the loan?
3. Suppose that Bill receives the loan from Bank #2 and spends all of it buying a boat.  Bill pays Boatman Bob and Bob deposits the money into "Bank #3". Draw the t-account for Bank #3.  Be sure to label deposits, reserves, and loans.  What would money supply be after Bank #3 makes the loan?
4. NOW, instead of drawing t-accounts again and again and again to determine how money banks can create with the initial $75,000, use the money multiplier to determine total money supply AND how much money the banks created.