Answered: Suppose that Karen deposits $400 into…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Suppose that Karen deposits $400 into her checking account at the bank. The reserve requirement for Karen's bank is 9%. Assume the bank does not want to hold any excess reserves of new deposits.

a. Use this information to complete the balance sheet below to show how the bank's assets and liabilities change when Karen deposits the $400.

Instructions: Enter your answers as a whole number.

A Simple Bank Balance Sheet

Assets	Liabilities
Change in Reserves: $ ?	Change in Deposits: $ ?
Change in Loans: $?

b. Why are deposits considered liabilities for a bank?

multiple choice

Deposits can be loaned out by the bank.
The bank must pay interest on deposits.
The bank must hold deposits as reserves at the Federal Reserve.
Deposits can be withdrawn at any time.

Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.

Expert Solution

Step 1

Assets	Amount	Liabilities	Amount($)
Change in reserves	36	Change in deposits	400
Change in loans	364
Total	400	Total	400

$D e p o s i t s R e c e i v e d = $ 400 R e s e r v e s = 400 \times 9 % = $ 36 A m o u n t a v a i l a b l e f o r l o a n = 400 - 36 = $ 364$

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