Suppose You Deposit $4,000 in Currency into Your Checking Account

question 64

Essay

Suppose you deposit $4,000 in currency into your checking account at Bank of America.Assume that Bank of America has no excess reserves at the time you make your deposit and that the required reserve ratio is 10 percent.
a.Use a T-account to show the initial effect of this transaction on Bank of America's balance sheet.
b.Suppose that Bank of America makes the maximum loan they can from the funds you deposited.Use a T-account to show the initial effect on Bank of America's balance sheet from granting the loan.Also include in this T-account the transaction from question (a.).
c.Now suppose that whoever took out the loan in question (b)writes a check for this amount and that the person receiving the check deposits it in Bank of Boston.Show the effect of these transactions on the balance sheet of Bank of America and Bank of Boston,after the check has been cleared.On the T-account for Bank of America,include the transactions from questions (a)and (b).
d.What is the maximum increase in checking account deposits that can result from your $4,000 deposit? What is the maximum increase in the money supply? Explain.

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Definitions:

Whistle-blowing

The act of exposing any kind of information or activity that is deemed illegal, unethical, or not correct within an organization.

Unethical Behaviour

Actions that violate moral or professional principles, often harming others or compromising ethical standards.

High Need for Power

Refers to individuals who have a strong desire to influence, control, or command over others.

Ethical

Pertaining to or dealing with morals, the principles of morality pertaining to right and wrong conduct.