Jimmy Paul Miller starts his own bank, called JPM. As owner, Jimmy puts in $2,000 of his own money. JPM then borrows $4,000 in a long-term loan from Jimmy's uncle, accepts $14,000 in demand deposits from his neighbors, buys $7,000 of U.S. Treasury bonds, lends $10,000 to local businesses, and keeps the remainder of the bank's assets as reserves at the Fed.

c.) the government had concerns about the ability of businesses to pay back their loans and put in place a 40% capital requirement. That is, banks had to hold capital equal to 40% of whatever money they loaned out. Assuming JPM wanted to maintain its volume of lending, show the bank's balance sheet prior to the downturn with the capital requirement. You can assume Jimmy has the means to make further investment in the bank.

d.) Show JPM's new balance sheet after a downturn which causes 20 percent of businesses to default on their loans, with the capital requirement imposed.

e.) Say Jimmy is unwilling to make any further investment in JPM. How does JPM meet its capital requirement in this case? Show JPM's new balance sheet prior to the downturn. What impact would you expect this to have on the money supply? Why?