Explain and show through the balance sheet structure changes how the following transactions affect the money supply (M1): Transaction 1: The initial Loan from the FN Bank is taken by Mark who buys a car from a dealer. Use the balance sheet (T-accounts) to present the effects of this transaction on Mark and the car dealer, assuming that the dealer keeps money in the Second National Bank. How this transaction affects M1? Transaction 2: Assume that another guy, Jack, comes to the Second National Bank and takes the loan in the amount available. He wants to buy machinery for construction (Bulldozer) from the Caterpillar factory. Use the balance sheet (T-accounts) to present the effects of this transaction on Jack and the Caterpillar factory, assuming that the factory keeps money in the Third National Bank. How this transaction affects M1? Does this process stop eventually? Provide an intuition (and calculate) with respect how much money will be created out of the initial deposit ($400).
Explain and show through the balance sheet structure changes how the following transactions affect the money supply (M1): Transaction 1: The initial Loan from the FN Bank is taken by Mark who buys a car from a dealer. Use the balance sheet (T-accounts) to present the effects of this transaction on Mark and the car dealer, assuming that the dealer keeps money in the Second National Bank. How this transaction affects M1? Transaction 2: Assume that another guy, Jack, comes to the Second National Bank and takes the loan in the amount available. He wants to buy machinery for construction (Bulldozer) from the Caterpillar factory. Use the balance sheet (T-accounts) to present the effects of this transaction on Jack and the Caterpillar factory, assuming that the factory keeps money in the Third National Bank. How this transaction affects M1? Does this process stop eventually? Provide an intuition (and calculate) with respect how much money will be created out of the initial deposit ($400).
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Explain and show through the balance sheet structure changes how the following
transactions affect the money supply (M1):
Transaction 1: The initial Loan from the FN Bank is taken by Mark who buys a car from a
dealer. Use the balance sheet (T-accounts) to present the effects of this transaction on Mark
and the car dealer, assuming that the dealer keeps money in the Second National Bank. How
this transaction affects M1?
Transaction 2: Assume that another guy, Jack, comes to the Second National Bank and takes
the loan in the amount available. He wants to buy machinery for construction (Bulldozer)
from the Caterpillar factory. Use the balance sheet (T-accounts) to present the effects of this
transaction on Jack and the Caterpillar factory, assuming that the factory keeps money in the
Third National Bank. How this transaction affects M1?
Does this process stop eventually? Provide an intuition (and calculate) with respect how
much money will be created out of the initial deposit ($400).
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