(a) How much can Second Federal Bank create in new loans? Explain.
(b) Mr. Smith deposits $5,000 of cash in a demand deposit account in Second Federal Bank. Calculate the maximum amount of new loans that Second Federal Bank can now make.
(c) As a result of Mr. Smith's cash deposit, calculate the maximum change over time in each of the following in the banking system.
(i) Loans
(ii) Demand deposits
(d) As a result of Mr. Smith $5,000 cash deposit, calculate the maximum change over time in the money supply.
(e) Provide one reason why the change in the money supply may be different than the amount identified in part (d).