One of the potential problems for a bank is high rates of loan default. This is a scenario when loan receivers cannot pay back what they owe to the bank. To reduce this kind of risk, a bank can hold a greater share of government bonds or reserves instead of loans as assets in its balance sheet. 4.a) Explain how this can change the asset side of the balance sheet? Would this make the balance sheet imbalanced? 4.b) What is the implication of this change for the GDP in the short- run? Explain in an AS/AD graph.

One of the potential problems for a bank is high rates of loan default. This is a scenario when loan receivers cannot pay back what they owe to the bank. To reduce this kind of risk, a bank can hold a greater share of government bonds or reserves instead of loans as assets in its balance sheet. 4.a) Explain how this can change the asset side of the balance sheet? Would this make the balance sheet imbalanced? 4.b) What is the implication of this change for the GDP in the short- run? Explain in an AS/AD graph.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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