Suppose that banking system's cash reserves are $200,000, the checkable deposits are $100,000, and the reserve requirements is 20 percent. Also assume banks will loan out any excess reserves and the ratio of people's cash to deposits is zero (no cash holdings)
a. What are the banking system excess reserves?
b. By how much can bank increase its loans?
c. What is the size of the simple money multiplier? What does it tell us?
d. By how much will the banking system be able to expand the money supply?
e. What would be the money supply in the economy after the banking system action?