A private bank has the following entries on their T-account:
Reserves 400,000
Long Term Investments 1,800,000
Demand Deposits 2,000,000
Short Term borrowing 250,000
Bonds 100,000
Now imagine that the Fed initiates a bond purchase in the amount of $50,000. If the reserve requirement is 20%, what is the potential increase in the money supply? How would this appear on the bank's T-account?
