SCENARIO 2:100 Percent Reserve Banking ·Initially C=$1000,D=$0,M=$1000. Now suppose households deposit the $1000 at "Firstbank." FIRSTBANK'S After the deposit, balance sheet C=$0, D=$1000, Assets Liabilities M=$1000. reserves $1000 deposits $1000 ■100%Reserve Banking has no impact on size of money supply. CHAPTER 18 Money Supply and Money Demand slide 6 CHAPTER 18 Money Supply and Money Demand slide 6 SCENARIO 2: 100 Percent Reserve Banking ▪ After the deposit, C = $0, D = $1000, M = $1000. ▪ 100% Reserve Banking has no impact on size of money supply. FIRSTBANK’S balance sheet Assets Liabilities reserves $1000 deposits $1000 ▪ Initially C = $1000, D = $0, M = $1000. ▪ Now suppose households deposit the $1000 at “Firstbank.” 1