Question 2:

1. Draw a balance sheet for Bank ABC. There is a reserve requirement of 15%.
2. Record what happens to liabilities and assets when Alex deposits $1,000 into his checking account.
3. Sue deposits $500 into her savings account in Bank ABC. Record how this affects the balance sheet you already drew.
4. Dave wants a loan to buy a car. He goes to Bank ABC and borrows $1,000. Record this transaction on the same bank balance sheet.

Question 3:

Bank JKL has Required Reserves of $1,000 with a 10% required reserve ratio. The total Reserves are $25,000.

1. How much are demand deposits?
2. If Barbara withdraws $1,000 from her checking account,
3. How much will demand deposits equal?
4. What will happen to total reserves?
5. What will happen to excess reserves?
6. What will happen to required reserves?

Question 4

1. If the reserve requirement ratio set by the central bank is 5%, when there is a demand deposit of $20,000, by how much does the money supply expand? Show your work.

1. The next year the central bank increases the reserve requirement ratio to 10%. With an equal demand deposit of $20,000, by how much does the money supply increase? Show your work.