Microsoft Word – Final Exam BUS500B.docxAn immigrant arrive in New Transylvania with $1,200. The $1,200is deposited in a bank. All the banks in New Transylvania have arequired reserve ratio of 20%.a....

Microsoft Word – Final Exam BUS500B.docxAn immigrant arrive in New Transylvania with $1,200. The $1,200is deposited in a bank. All the banks in New Transylvania have arequired reserve ratio of 20%.a. What is the initial increase in the bank deposits when theimmigrant arrives? b. Now the lending-borrowing transactions are taking place and thefunds lent out are returned to the banking system in the form ofdeposits. By how much has the bank deposits increased after thebanks have made 2 loans? (Hints: show how banks create moneyand show how much bank A lends money to bank B and how muchbank B lend money to bank C) c. What is the total increase in the quantity of money (bank deposits)in the economy?(Hints: the change in money supply = the change in monetary base* money multiplier)