Answered step by step
Verified Expert Solution
Question
1 Approved Answer
On the island of Marbella there are three banks: Bank A, Bank B, and Bank C. Under Marbella's banking regulations, all banks are required
On the island of Marbella there are three banks: Bank A, Bank B, and Bank C. Under Marbella's banking regulations, all banks are required to hold at least 8% of their deposits as reserves. Amos, an inhabitant of Marbella, has $15,000. Previously he had held all of it in cash at home, but he now decides to deposit it all in Bank A. Bank A decides to loan the maximum allowable amount to Amos' neighbor, Barbara, who has a business idea that she needs funding for. When Barbara receives her loan she immediately deposits all of it in Bank B. Bank B then loans the maximum possible amount to Carla, who needs the money for her own business idea. When Carla receives the loan she immediately deposits all of it into Bank C. a. Fill in the T-Accounts in Figure I to show the assets and liabilities of Amos, Barbara, Carla and Banks A, B, and C after all of the transactions described above have taken place. Each entry in the T-accounts should specify both (1) the particular type of asset or liability and (ii) the dollar amount of that asset or liability. Round your answers to the nearest dollar. (Hint: All of the assets and liabilities in this part will be either "Deposits", "Loans", or "Reserves") b. Before Amos deposited his money into Bank A, what was the money supply in Marbella? Explain your answer. (Assume that there is no money in Marbella beyond what is described above.) For full credit you must provide a number and explain how you arrived at it. c. What was the money supply in Marbella after all of the transactions described above have taken place? For full credit you must provide a number and explain how you arrived at it. Figure 1. T-Accounts for Marbella AMOS BANK A Assets Liabilities Assets Liabilities BANK B BARBARA Assets Liabilises Assets Libe CARLA BANK C Assets Liabilities Assets Liabilities
Step by Step Solution
★★★★★
3.57 Rating (164 Votes )
There are 3 Steps involved in it
Step: 1
a AMOS Assets Deposits BANKAs Balance ...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