1. T Accounts: Demand Deposits and Money Creation?
Assets
Liabilities
$500
Required Reserves
Demand Deposits
$5000
$4,500
Excess Reserves
Owner’s equity
$4,500
Loans
Government Securities
Buildings and fixtures
Example: A person puts $5,000 in their checking account and the required reserve is 10%
$5000 goes into demand deposits
$500 goes to required reserves (reserve ratio) and $4500 goes to excess reserves
The bank can now loan out $4,500
The total amount the bank can lend is $4,500
To determine the impact on M1 - multiply $4,500 (the loans) x 10 (the multiplier) = $45,000
To determine the total impact on demand deposits-
multiply $4,500 (loans) x 10 (multiplier) add the initial deposit $5,000 = $50,000

2. Assets
Liabilities
Required Reserves
4000
Demand Deposits
20,000
Excess Reserves ?
Loans
15,000
Government Securities
1. What is the reserve ratio?
2. How much money is in excess reserves?
3. If there is a deposit of $1000 what will be the new total in required reserves?
4. What is the new total of what the bank can loan?
5. What is the maximum possible increase of the deposit on the money supply
6. What will be the maximum change in demand deposits?
1/5
$1000
$4200
$1800
$4000
$5000

3. Assets
Liabilities
Required Reserves ?
Demand Deposits
100,000
Excess Reserves ?
Loans
95,000
Government Securities
How much are required reserves if the reserve ratio is 5%
How much are excess reserves
If a deposit of $10,000 cash occurs how much does M1 change?
By how much do required reserves change?
How much more can the bank loan?
What will be the total possible impact on money supply
What will be the total possible impact on demand deposits?
$5000
$500
$9500
$190,000
$200,000

4. Assets
Liabilities
Required Reserves
20,000
Demand Deposits ?
Excess Reserves
10,000
Loans
150,000
Government Securities
20,000
What is the amount of demand deposits
What is the reserve ratio
How much can the bank loan out
If the bank makes the loans what is the total possible impact on money supply
If $10,000 cash is withdrawn from the bank:
What is the new amount in required reserves
What is the new amount in excess reserves
How does the withdrawal impact M1?
$200,000
1/10
$10,000
$100,000
$19000
$1000
No impact

5. Assets
Liabilities
Required Reserves
$40,000
Demand Deposits
$80,000
Excess Reserves
$10,000
Loans
$30,000
Government Securities ?
How much does this bank hold in bonds?
What is the reserve ratio?
If a deposit of $20,000 is made:
How much will be added to required reserves
What will be the total of excess reserves
What can be the total amount of new loans by this bank
What is the maximum possible impact on money supply
What will happen to the impact on money supply if the bank
decides to hold some of the new money in excess reserves?
1/2
$10,000
$20,000
$40,000
Impact of less than $40,000