This questions guides you through the concept of the money multiplier. Suppose banks have a reserve requirement of 10%. That is, for every dollar of extra deposit a bank receives, it can (and will) lend out 90 cents. As explained in class, money lent out will create more deposits, creating a money multiplier" effect. (a) Suppose bank 1 receives an additional $100 of deposits. How many additional dollars of loans are created by bank 1? (b) Now, suppose the loan made by bank 1 became deposits at bank 2, which will makes more loans. How many additional dollars of loans are created by bank 1 and 2 combined? (c) (Involves math not covered in class) Suppose this process goes on forever, to bank 3, bank 4, and ... bank (infinity). How many additional dollars of loans are created by this infinite chain of banks? Hint: the formula for the sum of an infinite geometric series is give below. If confusing, please search online. 1 1+r+ m2 +p3 + 1-T This questions guides you through the concept of the money multiplier. Suppose banks have a reserve requirement of 10%. That is, for every dollar of extra deposit a bank receives, it can (and will) lend out 90 cents. As explained in class, money lent out will create more deposits, creating a money multiplier" effect. (a) Suppose bank 1 receives an additional $100 of deposits. How many additional dollars of loans are created by bank 1? (b) Now, suppose the loan made by bank 1 became deposits at bank 2, which will makes more loans. How many additional dollars of loans are created by bank 1 and 2 combined? (c) (Involves math not covered in class) Suppose this process goes on forever, to bank 3, bank 4, and ... bank (infinity). How many additional dollars of loans are created by this infinite chain of banks? Hint: the formula for the sum of an infinite geometric series is give below. If confusing, please search online. 1 1+r+ m2 +p3 + 1-T