Q2. Bank Profits: Bank A has deposit liabilities of $200 million. It keeps the minimum cash reserves required by law of 20% and holds an additional 10% of minimum cash reserves. Now the lending-borrowing transactions are taking place and the funds lent out from one bank are returned to the banking system in the form of new deposits to another bank. For example, Bank A keeps its minimum required reserves and lends the excess to Kitti. Kitti spends her loan at Walmart. Walmart deposits the check it receives from Kitti in Bank B. Show how Bank A makes one loans to Bank B. Assume that each bank has the same annual 8% annual interest rate on its loans and 2% annual interest rate on its deposits. Their annual costs (wages, rent, utilities, etc.) are $2 million. a. Write down the balance sheet of bank A and calculate their net profits. Bank A Asset Deposit liability Cash reserves: Deposits: Loaned out: Net profit: b. Bank B also keeps only its minimum required reserves (no additional reserves) and lends the excess to borrowers. Bank B Asset Deposit liability Cash reserves: Deposits: Loaned out: Net profit: c. Suppose the Federal Reserve wants to increase the monetary base by $2,000,000. How much would the total money supply change as a result of the Fed's action if all banks held an additional 10% of cash reserves (err)