Question 1: Al khatib bank holds $250 million in deposits and maintains a reserve ratio of 10 percent.

a. Show a T-account for AKB.

b. Now suppose that AKB's largest deposit withdrawals $10 million in cash from her account. If AKB decides to restore its reserve ratio by reducing the amount of loans outstanding, show its new T-account.

Question 2: You take $100 you had kept under your mattress and deposit it in your bank account. If this $100 stays in the banking system as reserves and if banks hold reserves equal to 10 percent of deposits,

a. By how much does the total amount of deposits in the banking system increases?

b. By how much does the money supply increase?