Intially, the Republic of Gorgonzoa has no commerclal banking system. To make trading easier and eliminate the need for barter, the government directs the central bank of Gotgonzola to put into circulation 2,000,000 identical paper notes, called guliders. The central bonk pints the ouiliders and distributes them to the people. At this point the Gorgonzolan money supply is 2.000,000 puileers. In order to keep the money safe, some Gorgonzolan entrepreneurs set up a system of commercial banks. When people need to make o payment, they can either withdraw their guliders or write a check on their occount. Checks give the banks permission to transfer guilders from the sccoumt of the person paying by check to the sccount of the person to whom the check is made out. With a system of payments based on checks, the paper pullders need never leave the banking system, although they flow from one bank to another as a depositor of one bank makes a payment to a dopositor in another bank. Doposits do not earn interest in this economy. Lets suppose for now that people prefer bank deposits to cash and so deposk all of their gullelers with the commercial banks. Assume that (1) initiolly, the Gorgonzolan central bank puts 2.000,000 guilders into circulation and (2) commercial banks desire to hold reserves of 25 percent of deposits. Assume that the public holds no currency. Instructions: Enter your responses as whole numbers. a. The consoldeted balance sheet of Gorgonzolan commercial banks after the initial deposits is: Initial balance sheet b. The consalidated balance sheet of Gorgonzolan commercial banks after one round of loans is: Baiance sheet after first round of loens b. The consolidated balance sheet of Gorgonzolan commercial banks after one round of loans is: Balance sheet after first round of loans c. The consolidated balance sheet of Gorgonzolan commercial banks after the first redeposit of guilders is: Balance sheet after redeposits d. The consolidated balance sheet of Gorgonzolan commerclal banks after two rounds of loans and redeposits is: Balance sheet after second round of loans and redeposits c. The consolidated balance sheet of Gorgonzolan commercial banks after the first tedeposit of gullders is: Balance sheet after redeposits d. The consolidated bolance sheet of Gorgonzolan commercial banks after two rounds of loans and redeposits is: Balance sheet after second round of loans and redeposits e. The final values of bank reserves, loans, deposits are: Final consolidated balance sheet The final volue of the money supply is: 0 guilders
