Mr. Ryan deposits $1000 (his entire paycheck) into his checking account at First National Bank. The reserve requirement is 20% and the bank has no excess reserves.

a. What is the immediate effect of his deposit on the money supply? Explain

b. What is the maximum amount of money First National can initially loan out? Explain how you determined this amount.

c. What is the maximum amount of money the entire banking system can create? Explain how you determined this amount.

d. Give one reason why the money supply may not increase by the amount you identified in (c).