PART 1

a. Use a T-account to show the initial effect of this transaction on Bank of America's balance sheet. b. Suppose that Bank of America makes the maximum loan they can from the funds you deposited. Use a T-account to show the initial effect on Bank of America's balance sheet from granting the loan. Also include in this T-account the transaction from question (a.). c. Now suppose that whoever took out the loan in question (b) writes a check for this amount and that the person receiving the check deposits it in Bank of Boston. Show the effect of these transactions on the balance sheet of Bank of America and Bank of Boston, after the check has been cleared. On the T-account for Bank of America, include the transactions from questions (a) and (b). d. What is the maximum increase in checking account deposits that can result from your $4,000 deposit? What is the maximum increase in the money supply? Explain.

PART TWO

Question 13

Suppose $100,000 of U.S. grown apples are sold to a Japanese grocery firm. The sale of the apples are recorded in the balance of payments accounts for the United States as a (+) entry in the(Merchandise/Services/Income/Unilateral transfers/Financial)account and a (-) entry in the (Merchandise/Services/Income/Unilateral transfers/Financial) account.

Question 14

1. The balance on the income account can be interpreted asAnswer

   the difference between assets sold to foreigners and assets purchased from foreigners.

   the balance of trade.

   net exports.

   net aid to foreigners.

   net factor income from abroad.

Question 15

1. Which of the following would lead to an increase in the current account balance (or reduction in deficit) in the United States, all else held constant? CHECK ALL THAT APPLYAnswer

   I.	An increase in U.S. purchases of Chinese goods.
   II.	An increase in Canadian purchases of U.S. goods.
   III.	An increase in profits earned by Toyota (a Japanese firm) from its U.S. based operations.
   IV.	An increase in European travel to the United States.