Assuming an economy have only two commercial banks in it banking system, Classic Bank and Prudent Bank. The following shows the balance sheet of the two banks as at 2019. Classic Bank Balance sheet as at December, 2019 GHSm GHSm Assets: Liabilities & Equity: Reserves 1,000 Deposits 3,000 Securities 2,000 Equity 7,000 Loans & Advances 1,000 Property, Plant and Equipment 6,000 . 10,000 10,000 Prudent Bank Balance sheet as at December, 2019 GHSm GHSm Assets: Liabilities & Equity: Reserves 600 Deposits 2,500 Securities 1,500 Equity 4,400 Loans & Advances 800 Property, Plant and Equipment 4,000 . 6,900 6,900 Assume a required reserve ratio of 10%. What is the maximum amount that the money supply can be expanded? What would be the effect of a fall in reserve ratio to 5%, on the maximum amount that the money supply can be expanded?

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