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Suppose again that checkable deposits started off at $1,500,000 in First Main Street Bank, the required reserve ratio is 10%, with no excess reserves and
Suppose again that checkable deposits started off at $1,500,000 in First Main Street Bank, the required reserve ratio is 10%, with no excess reserves and no cash leakage. First Main Street Bank takes the entire $2,500 in excess reserves that resulted from the open-market purchase by the Fed and creates a loan for Teresa in a form of a new checkable deposit with a balance of $2,500. The money supply now is . Then Teresa writes a check for $2,500 to Andrew, who immediately deposits the full amount into his checking account at Second Republic Bank
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