When the reserve requirement changes, which of the following will change in the total banking system? (Answer change or No Change)
Suppose that a lottery winner deposits $20 million in cash into her transactions account at the Bank of America (B of A). Assume a reserve requirement of 25 percent and no excess reserves in the banking system prior to this deposit.
(a) Use step 1 in the T accounts below to show how her deposit affects the balance sheet of B of A.
(b) Has the money supply been changed by her deposit?
(c) Use step 2 below to show the changes at B of A after the bank fully uses its new lending capacity?
(d) Has the money supply changed in step2?
(e) In step 3 the new borrower(s) writes a check for the amount of the loan in step 2. That check is deposited at another bank and B of A pays the other bank when the check clears. What does the B of A balance sheet look like now?
(f) After the entire banking system uses the lending capacity of the initial ($20 million) deposit, by how much will the following have changed?