Answer to Question #175308 in Macroeconomics for lily

Question

Fair Bank, decides to grant loans for a total of $10 million to its account holders.

Balance sheet (millions): Fair Bank

cash:$15

checkable deposits:$215

reserves:$45

loans:$120

net worth:$45

property:$80

First, use the provided values to place the proper figures that represent Fair Bank's new situation.

Balance sheet (millions):

cash:

checkable deposits:

reserves:loans:

net worth:

property:

Suppose that the loan recipients write checks to people not holding accounts at Fair Bank for the entire $10 million. In turn, the checks are cashed by their beneficiaries at their corresponding banks. Again, use the provided values to represent the financial situation of Fair Bank after all checks are cleared.

Balance sheet (millions):

cash:

checkable deposits:

reserves:

loans:

net worth:

property:

Answer Bank

$90

$80

$120

$55

$25

$15

$5

$45

$70

$130

$225

$35

$205

$100

$215

Answer 1

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A] By granting loan Fair bank reserves, property and net worth does not change.

Since loan is kept in an account in the same bank cash does not change. Loan amount will add $10 million and this loan amount is credit in the bank, thus checkable deposit added $10 million. Thus the balance sheet will be as follows.

 

B] By granting the loan Fair bank reserves, property and net worth does not change.

Since loan is credit to other bank, reserve decreases by $10 million, loan amount will add $10 million. Thus balance sheet will be as follows: