Amy opens a new checking account and deposits $20,000 in cash at Metropolitan Bank. The
required reserve ratio is 25 percent. Use this information to answer parts (a)-(e).
(a) What is the amount by which Metropolitan Bank's liabilities have changed? Explain.
(b) Calculate the change in required reserves for Metropolitan Bank. Show your work.
(c) What is the dollar value of the maximum amount of new loans Metropolitan Bank can
initially make from Amy's deposit? Explain.
(d) As a result of Amy's deposit, calculate the maximum amount by which the money supply
can change throughout the banking system. Show your work.
(e) How will the change in the money supply in part (d) affect aggregate demand and
unemployment in the short run? Explain.