Macroeconomics + Economy 2009 Update 18th Edition by Campbell McConnell, Sean Masaki Flynn,Stanley Brue

Exercise 5

Suppose that Bob withdraws $100 of cash from his checking account at Security Bank and uses it to buy a camera from Joe, who deposits the $100 in his checking account in Serenity Bank. Assuming a reserve ratio of 10 percent and no initial excess reserves, determine the extent to which ( a ) Security Bank must reduce its loans and checkable deposits because of the cash withdrawal, ( b ) Serenity Bank can safely increase its loans and checkable deposits because of the cash deposit, and ( c ) the entire banking system, including Serenity, can increase loans and checkable deposits because of the cash deposit. Have the cash withdrawal and deposit changed the total money supply