A Bank Has Book Value of $5 Million in Liquid

question 28

Multiple Choice

A bank has book value of $5 million in liquid assets and $95 million in nonliquid assets. Large depositors unexpectedly withdraw $9.5 million in deposits. To cover the withdrawals the bank sells all of its liquid assets at book value. To raise the additional funds needed the bank sells the necessary amount of nonliquid assets at 80 cents per dollar of book value. As a result,the bank's equity will ________.

• A)remain unchanged
• B)fall $4.5 million
• C)fall $3.6 million
• D)fall $1.4 million
• E)fall $5.0 million

Understand the principle of marginal analysis in the context of common resource use and market failure.

Recognize the economic rationale behind charging congestion fees and other similar mechanisms to mitigate negative externalities.

Determine the efficient level of production and consumption in the presence of external costs and benefits.

Understand the concepts of artificially scarce goods and natural monopolies, including their cost structures.

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Definitions:

Symbolic Interactionism

A sociological perspective focusing on the symbolic meanings that people develop and rely upon in the course of social interaction.

Social Structures

The organized pattern of social relationships and institutions that together constitute society, shaping individuals' behaviors and attitudes.

Self-Fulfilling Prophecy

A prediction that, once made, causes the outcome to occur.

Self-Fulfilling Prophecy

A prediction that directly or indirectly causes itself to become true due to positive feedback between belief and behavior.