Chapter 27, Problem 31P

Humongous Bank is the only bank in the economy. The people in this economy have $\$\text{2}0$ million in money, and they deposit all their money in Humongous Bank.

1. Humongous Bank decides on a policy of holding $\text{1}00\%$ reserves. Draw a T-account for the bank.
2. Humongous Bank is required to hold $\text{5}\%$ of its existing $\$\text{2}0$ million as reserves, and to loan out the rest. Draw a T-account for the bank after it has made its first round of loans.
3. Assume that Humongous bank is part of a multibank system. How much will money supply increase with that original $\$\text{19}$ million loan?