You have just opened up a local bank. Your first customer, Sue, opens a savings account and deposits $5,000.

The required reserve ratio is 20%.

1. Calculate and write down on the T-account the Required Reserves, Excess Reserves, and the initial deposit. Label!

Assets Liabilities & Net Worth

If your bank holds no excess reserves by loaning out all that it can and there is no leakage in the system, answer the following questions and then show that information on your ending balance sheet below.

2. Maximum deposits from the money multiplier effect after the initial $5,000 deposit:

What is the money multiplier?

What are the maximum total deposits based on the money multiplier?

Show the maximum total deposits on the T-account. Label!

3. Calculate the required reserves using the required reserve ratio in the space below. Place it on the t-account and label it.

4. Calculate the total loans in the space below and then show it on the T-account. Label!

5. How much money was created in the system by that initial deposit?

Assets Liabilities & Net Worth