Determine the bank’s reserve ratio

A chartered bank has $1 million in deposits and $40,000 in required reserves. Its excess reserves are initially zero.

1. Determine the bank’s reserve ratio. (1)
2. If an additional $100,000 is deposited in the bank, determine the consequent increases in both its required reserves and excess reserves. (4)
3. Use a balance sheet to show the potential increase of the money supply which the bank could effect. (5)

A client deposits $200 in cash in her bank. If the reserve ratio in the banking system is 6 percent then:

1. What’s the initial change in the excess reserves in the depositor’s bank? (2)
2. Calculate the maximum amount of change in the money supply stemming from this transaction once the process of money creation in the banking system it initiates has been exhausted. (3)