A . If Orde Windgate withdraws $4,00 . from the First Bank of Chicago and deposits it in a new account at the Second Bank of Chicago, explain how much money the Second Bank of Chicago can create if the legal reserve requirement is 10 percent. b. Will this transaction increase the amount of money that the banking system as a whole can create? Explain
a . The Second Bank of Chicago can create $3,600 of new loans.
b. This transaction cannot increase the amount of money that the banking system as a whole can create,
because the increase in deposits at the Second Bank of Chicago is exactly offset by the decrease in
deposits at the First Bank of Chicago.
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