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Effect of payment on Bank's balance sheet.

Johnny Fatcat withdraws $15,000 from his checking account at The DL Bank. He pays $10,000 to Sammy Loanshark, who puts the money in his checking account at The Sopranos Bank. Johnny uses the other $5,000 as paper for his hand-rolled cigarettes, all of which he smokes ("nothing smokes better than a $100 bill," he loves to tell his friends). Suppose all banks hold only the required 10% reserves and always loan out the rest, and that no cash is held by the public .

Show the effect of Sammy's payment on Bad Boys Bank's balance sheet.

 

Business Economics, Economics

  • Category:- Business Economics
  • Reference No.:- M920867

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