Recently Vietcombank (VCB) has purchased VND1 billion T-bonds from the State Bank of Vietnam (SBV). Assume:

- The required reserves ratio is 10%.

- Banks do not hold any excess reserves, and the public holds no currency

- Vietinbank, BIDV, Vietcombank, are members of the Vietnamese banking system.

a. Explain how this transaction affects the total deposits in the banking system using the final T-account for the first three banks in the system to illustrate the process of contractionary monetary policy.

b. What is the change in total deposits in the whole Vietnams banking system? Show your calculations.

c. Assume that in addition to the required reserve ratio, all commercial banks in the banking system decide to keep 10% excess reserves. What is the change in the total deposit compared to the answer in (b)? Based on this change, give your comments on the assumptions of the simple multiple deposit creation model.