Below is the T-account for First City Bank, the only bank in a small city-state. In addition to the demand d?

Question

Below is the T-account for First City Bank, the only bank in a small city-state. In addition to the demand deposits of $500,000, citizens hold $200,000 in coins and currency. Assume that demand deposits and currency are the only forms of money. Use this information to answer the following questions.

Assets Liabilities

Reserves $100,000 Deposits $500,000

Loans $400,000

8.5. If people deposit $50,000 of their currency in accounts at the First City Bank, and the bank holds no excess reserves and all loans are redeposited in the bank, by how much will the money supply have increased after the money multiplier process is complete?

A. $200,000

B. $800,000

C. $50,000

D. $500,000

Please I want an explantion for the right answer.Thanks everyone

Answer 1

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