Suppose First Main Street Bank loans out all of its new excess reserves to Cho, who immediately uses the funds to write a check to Bob. Bob deposits the funds immediately into his checking account at Second Republic Bank. Then Second Republic Bank lends out all of its new excess reserves to Eric, who writes a check to Ginny, who deposits the money into her account at Third Fidelity Bank. Third Fidelity lends out all of its new excess reserves to Lucia as well. Fill in the following table to show the effect of this ongoing chain of events at each bank. Enter each answer to the nearest dollar.
Increase in Deposits Increase in Required Reserves Increase in Loans
(Dollars) (Dollars) (Dollars)
First Main Street Bank
Second Republic Bank
Third Fidelity Bank
Assume this process continues, with each successive loan deposited into a checking account and no banks keeping any excess reserves. Under these assumptions, the $1,500,000 injection into the money supply results in an overall increase of in demand deposits.