Question
Imagine a monetary system with just two commercial banks. Their simplified balance sheets are shown below. BANK A Assets Liabilities Cb = 100 Dp =
Imagine a monetary system with just two commercial banks. Their simplified balance sheets are shown below.
BANK A
Assets | Liabilities |
Cb = 100 | Dp = 2150 |
Db = 50 | |
Lp = 2000 |
BANK B
Assets | Liabilities |
Cb = 500 | Dp = 4000 |
Db = 500 | |
Lp = 3000 |
Cb are notes and coins held by banks
Db are deposits of banks at the central bank
Lp are loans provided by banks to the private sector
Dp are customer deposits
In addition, the non-bank public holds notes and coin (Cp) of 400.
i) Compare the two banks using information from their balance sheets.
ii) Determine the stock of broad money.
Suppose now that Bank A makes additional loans of 100 dollars to a subset of its customers and that some of these customers use 50 dollars to make payments to other depositors of the same bank and 50 dollars to make payments to clients of Bank B.
iii) Draw up new balance sheets for each bank.
iv) Determine the stock of broad money after the adjustment.
v) Based on your results, discuss in detail the multiplier effect of money supply.
PLEASE SHOW ALL BASIC WORKING
HOPE SOMEONE HELPS ME OUT WITH A SOLUTION TO THIS SEEING THAT A SIMILAR ONE I POSTED WAS NEVER ANSWERED.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started