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Inttially, the Republic of Gorgonzola has no commercial banking system. To make trading easier and eliminate the need for barter, the government directs the central

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Inttially, the Republic of Gorgonzola has no commercial banking system. To make trading easier and eliminate the need for barter, the government directs the central bank of Gorgonzola to put into circulation 2,000,000 identical paper notes, called guliders. The central bank prints the guilders and distributes them to the people. At this point the Gorgonzolan money supply is 2,000,000 guilders In order to keep the money safe, some Gorgonzolan entrepreneurs set up a system of commercial banks. When people need to make a payment, they can elther withdraw thelr guilders or wrte a check on their account. Checks give the banks permission to transfer guifders from the account of the person paying by check to the account of the person to whom the check is mode out. With a system of payments based on checks, the paper gullders 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 depositor in another bank. Deposits do not earn interest in this economy. Let's suppose for now that people prefer bank deposits to cash and so deposit all of their guliders with the commercial baniks. Assume that (i) initually, the Gorgonzolan central bank puts 2,000,000 guilders into circulation and (2) commercial banks desire to hold reserves of 5 percent of deposits. Assume that the public holds no currency Instructlons: Enter your responses as whole numbers a. The consolidated balance sheet of Gorgonzolan commercial banks after the initial deposits is: Initial balance sheet b. The consolidated balance sheet of Gorgonzolan commercial banks ofter one round of loans is: Belence sheet after flrst round of loens c. The consolidated balance sheet of Gorgonzolan commercial banks after the first redeposit of guilders is: Belance sheet ofter redeposlts d. The consolidated balance sheet of Gorgonzolan commerclal banks after two rounds of loans and redeposts is. Bolonce sheet after second round of loans and redeposits e. The final values of bank reserves, loans, deposis ore Final consolldated balence sheet. The final yalue of the money supply is: guilders

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