Eli receives $200 in cash for his birthday and deposits the money in his checking account at River Town Bank.
a. How does this deposit initially change the T-account of River Town Bank? How does it affect the money supply?
b. If the bank maintains a reserve ratio of 15%, how will River Town respond to the new deposit?
c. If every time River Town makes a loan, the loan results in a new checkable deposit in a different bank equal to the amount of the loan, by how much could the money supply in the economy expand in total?

Question

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The Answer of Eli receives $200 in cash for his birthday and deposits the money in his checking account at River Town Bank.
a. How does this deposit initially change the T-account of River Town Bank? How does it affect the money supply?
b. If the bank maintains a reserve ratio of 15%, how will River Town respond to the new deposit?
c. If every time River Town makes a loan, the loan results in a new checkable deposit in a different bank equal to the amount of the loan, by how much could the money supply in the economy expand in total?

Eli Receives $200 in Cash for His Birthday and Deposits