Suppose the First National Bank Has the Following Simplified Balance

question 20

Essay

Suppose the First National Bank has the following simplified balance sheet.The reserve ratio is 20% and all dollar figures are in thousands. Assume that households and businesses deposit $5 in this bank and that this currency is added to the bank's reserves.(a) In column (1) show the bank's balance sheet after this occurs.Is there a change in the money supply?
(b) In column (2) show what would happen if the bank now loans all of its excess reserves to a depositor.Is there a change in the money supply?

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