You have decided to deposit $2,000 in a savings account in the Commonwealth Bank, which does not have any excess reserves at the time when you make a deposit.
a: How does your deposit change the Bank's T-account? Show the T-account changes.
b: Now the Bank is told to maintain a reserve ratio of 0.2 (ie, 20 percent). The Bank decides to make the maximum possible loan from the deposited funds. Following from the T-account in Part a), what does the T-account look like now?
c: Now, somebody who took out the loan in Part b) writes a cheque for the amount and then the person receiving the cheque deposits it in WestPac Bank which also maintains a reserve ratio of 0.2. Show how this changes the T-account of WestPac Bank.
d: If the process of money creation continues what is the total money supply resulting from your initial $2,000 deposit?