Ryan Bank holds reserves of $7,500 and demand deposits of $10,000
. The required reserve ratio is 5%
.

(a) What is the amount of Ryan Bank’s liabilities? Explain.

(b) Calculate Ryan Bank’s required reserves. Show your work.

(c) Given the amount of reserves and demand deposits, what is the dollar value of the maximum amount of new loans Ryan Bank can make? Explain.

(d) Based on your answer to part (c), calculate the maximum amount by which the money supply can change throughout the banking system. Show your work.

(e) If the central bank would like to reverse the effect on the nominal interest rate caused by the change in the money supply in part (d), what open market operation should the central bank take? Explain.