Lets change the story of The Friendly Bank by introducing savings deposits. Assume that when people put

Question:

Let’s change the story of The Friendly Bank by introducing savings deposits. Assume that when people put money into the bank, half of it goes to checking deposits (D) and half to savings deposits (S). The ratio of currency to total deposits, C/(D + S), is 0.25. The ratio of reserves to checking deposits, R/D, is 0.25.
a. Notice that reserves are a fraction of checking deposits and don’t depend on savings deposits. Why might this be a reasonable assumption?
b. Redo the story of The Friendly Bank, showing the bank’s and the monetary aggregates for the first four days the bank is in business.
c. Compare your answer for part (b) to the corresponding calculations on pages 320-322, where we ignore savings deposits. In which case is the most money created? What explains this result? Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial...