Suppose that Big Bucks Bank has the simplified balance sheet shown below. The reserve ratio is 10 percent.

CHART 1

a. What is the maximum amount of new loans that Big Bucks Bank can make?$ HOW MUCH

Using the table (ATTACHED) above, show in columns 1 and 1' how the bank's balance sheet will appear after the bank has lent this additional amount by inserting the new values into the gray shaded cells of the given table.

b. By how much has the money supply changed?$ HOW MUCH

c. How will the bank's balance sheet appear after checks drawn for the entire amount of the new loans have been cleared against the bank?Show the new balance sheet in columns 2 and 2' by inserting the new values into the gray shaded cells of the given table.

d. Using the original figures, revisit questionsa,b, andcbased on the assumption that the reserve ratio is now 5 percent.

CHART 2

What is the maximum amount of new loans that this bank can make?$ HOW MUCH

Show in columns 3 and 3'how the bank's balance sheet will appear after the bank has lent this additional amount. Add the new values into the gray shaded cells of the given table.

By how much has the money supply changed?$ HOW MUCH

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