Assume that Jill deposits $20,000 in cash into her checking account at Welcome National Bank and the central bank has set a required reserve ratio of…

Assume that Jill deposits $20,000 in cash into her checking account at Welcome National Bank and the central bank has set a required reserve ratio of 10%.

  1. Explain the immediate effect of her deposit on the M1 measure of the money supply.
  2. If Welcome National Bank holds an additional 10% of her deposit in reserves, calculate the following:
  3. the maximum amount the bank will loan out
  4. the maximum increase in the money supply as a result of this transaction
  5. (Calculate means show your work on the AP exam.)