The purpose of this exercise is to illustrate the

multiple expansion

of bank

deposits in a

fractional-

reserve banking system

. Assume the Fed's legal reserve requirement is 20%.

The consolidated balance sheet of the U.S. banking system indicates:

Assets

Liabilities

Reserves

$30,000

Checkable deposits

$100,000

MUST SHOW FORMULA AND CACULATIONS FOR 6a - c AND 7a - c.

a.

The simple

money multiplier

equals _______________.

Formula:

b.

The banking system has

excess reserves

of $_______________.

Formula (write out formula #1a):

Formula (write out formula #1b):

c.

Loans and the money supply can be expanded by a maximum of $_______________.