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Suppose that Bank A, which faces a reserve requirement of 5%, receives a $10,000 deposit from a client. (hint: You may want to view the
Suppose that Bank A, which faces a reserve requirement of 5%, receives a $10,000 deposit from a client. (hint: You may want to view the Money Creation Process video and Recaps on Money Creation found in Bite Size 5.2 and 5.3.) a. Assuming that Bank A does not intend to hold any excess reserves, determine how much it would lend out. Show your answer in Bank A's balance sheet. b. Assuming that the loan shown in Bank A's balance sheet is re-deposited in Bank B, show the changes in Bank B's balance sheet if it also lends out the maximum possible. (Repeat this process for Bank C) c. Using the Simple Money Multiplier, calculate the total change in the money supply resulting from the $10,000 initial deposit
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