Assume that the following data describe the condition of the commercial banking system:

Value Total reserves: $90 billion

Transactions deposits: $800 billion

Cash held by public: $80 billion

Reserve requirement 0.10

money supply (M1) = 880 billion

The banks are not fully utilizing their lending capacity

What would happen to the money supply initially (before any lending takes place) if the public deposited another $40 billion in cash in transactions deposits?

Assuming the $40 billion cash is not new money in the system, then M1 will not change

How much would the total lending capacity of the entire banking system increase after such a portfolio switch billion

e) How large would the money supply be if the banks fully utilized their lending capacity? money supply will rise to billion