Lucy opens a new checking account and deposits $40,000 in cash at ABC Bank. The required reserve ratio is 5 percent. (a) What is the amount by which ABC Bank's liabilities have changed? Explain.
(b) Calculate the change in required reserves for ABC Bank. Show your work.
(c) What is the dollar value of the maximum amount of new loans ABC Bank can initially make from Lucy's deposit? Explain.
(d) As a result of Lucy's deposit, calculate the maximum amount by which the money supply can change throughout the banking system. Show your work.
(e) How will the change in the money supply in part (d) affect aggregate demand and unemployment in the short run? Explain.