Question 8Introduction (3 parts, 30minutes of content, 30points total) 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.

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

8b.Assume instead that Sammy uses the $10,000 he receives to pay back a loan from Bad Boys Bank. $8,000 goes to repay the loan itself, and $2,000 represents his interest payment.

Show the immediate changes on Bad Boys Banks balance sheet resulting from Sammys payment.

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8c.Ultimately, what will be the total amount of new loans in the economy after Sammys payment? Show your work.