Suppose Joe Is Digging Around in His Basement and He

question 20

Essay

Suppose Joe is digging around in his basement and he finds $1,000 hidden behind a wall.Assume that Joe takes the $1,000 and deposits it in his bank.Assume also that banks hold no excess reserves,people hold no currency,and the required reserve ratio is 5 percent.
(A)When Joe deposits the $1,000 in his bank,what happens to the balance sheet?
(B)How many loans can the bank create?
(C)Suppose Joe's bank makes a loan to Sally,and she deposits the money in her bank.How many loans can Sally's bank make?
(D)If banks continue to make loans,what is the total change in deposits?

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Definitions:

Socialization

The process through which individuals learn skills, knowledge, values, motives, and roles appropriate to their positions in a group or society.

Distribution

The process of distributing or spreading something, often related to the supply of goods to various places for sale.

Negative Consequences

Unfavorable results or outcomes that occur as a direct or indirect result of an action or decision.

Intense and Long-lasting

Describing emotions, experiences, or processes that are powerful and extend over a considerable period of time.