Suppose Bank A's Balance Sheet looks as follows and that the required reserve ratio is 15 percent.

Bank A

Assets Liabilities and Equity

Reserves $200,000 Demand Deposits $900,000

Loans, securities and other assets _800,000 Equity _100,000

Total assets 1,000,000 Total liabilities and equity 1,000,000

a) What would be the maximum amount of cash that depositors could withdraw before Bank A would be forced to do something about the amount of loans, securities and other assets it holds?

b) Suppose Bank A decides to make loans by creating demand deposits. Assume that Bank A and all other commercial banks in the banking system expect that 5 percent of any loans they make will be withdrawn immediately in the form of cash. What will be the maximum amount of deposit expansion, or money creation, that will take place throughout the banking system as a whole?