Consider a new deposit to the Canadian banking system

1) Consider a new deposit to the Canadian banking system of $1000. Suppose that all
commercial banks have a target reserve ratio of 10 percent and there is no cash drain. The
following table shows how deposits, reserves, and loans change as the new deposit permits
the banks to “create” money.

Round

∆ Deposits

∆ Reserves

∆ Loans

1st

$1000

$100

$900

2nd

3rd

4th

5th

a) The first round has been completed in the table. Now, recalling that the new loans in the
first round become the new deposits in the second round, complete the second round in
the table.
b) By using the same approach, complete the entire table.
c) You have now completed the first five rounds of the deposit-creation process. What is
the total change in deposits so far as a result of the single new deposit of $1000?
d) This deposit-creation process could go on forever, but it would still have a finite sum. The
eventual total change in deposits is equal to 1/v times the new deposit, where v is the
target reserve ratio. What is the eventual total change in deposits in this case?
e) What is the eventual total change in reserves? What is the eventual change in loans.