Assume that there are no excess reserves inthe banking system and the reserve ratio is 40 percent. John Smith finds $10,000 incash under his mattress, stashed there by his great aunt who didn't believein banks. Since he is her legal heir, he takes the cash and deposits it in histransactions account.
a. What has happened to the moneysupply?
b. How many excess reserves will John'sbank have as a result of the transaction?
c. How much can John's bank loanout?
d. What is the maximum amount of money the banks can create through deposit creation?