Question

Suppose you deposit​ $2000 in currency into your checking account at a branch of Bank of​ America, which we will assume has no reserves at the time you make your deposit. Also, assume that the required reserve ratio is​ 20% (0.20). ​
a. Complete the first​ T-account to the right to show the initial impact of this transaction on Bank of​ America's balance sheet. ​
b. Suppose that Bank of America makes the maximum loan it can from the funds you deposited. Using the second​ T-account, show the initial impact of the loan on Bank of​ America's balance sheet. The funds will be deposited in another bank.

Answer 1

Answer: Please see answer in the explanation column

Explanation:  A T- account resembles a tshape that shows a representation for financial records using  double-entry bookkeeping, when it involves  different accounts like asserts and liabilities, debits to liabilities decrease the account while credits increase the account. The contrary is true for assets

first T-account

.a) Assets              |         Liabilities

Reserve: +$2000        Deposit: +$2000

b)

Assets                |        Liabilities

Reserve $400        Deposit=+$2000

Loans: .+$1600         

Where required reserve ratio is 20% ie 0.02 x 2000= $400

The bank will keep $400 as reserve and can only loan out $1600

Deposited in another bank as

Assets                |        Liabilities

Reserve $1600        Deposit=$1600