Question 8 Introduction

Johnny Fatcat withdraws $15,000 from his checking account at The DL Bank. He pays $10,000 to Sammy Loanshark, who puts the money in his checking account at The Sopranos Bank. Johnny uses the other $5,000 as paper for his hand-rolled cigarettes, all of which he smokes ("nothing smokes better than a $100 bill," he loves to tell his friends).

Assume that all banks hold only the required 10% reserves and always loan out the rest, and that no cash is held by the public.

F

Question 12 10 pts

8a. What is the ultimate net effect on the money supply in the economy? Show your work.