Problem 1: An economy has a singular bank (Bank Uno) with a holding of $45 million in money via deposits made by citizens within the economy.
- Bank Uno decides on a policy of holding 75% reserves. Draw a T-account balance sheet for the bank.
- Bank Uno is required to hold 15% of its existing $45 million as reserves and to loan out the rest. Draw a T-account balance sheet for the bank after it has made its first round of loans.
- Assume that Bank Uno is part of a multibank system. How much will the money supply increase with the original loan established in the previous bullet point?
Problem 2: Martin Bank is holding $3 million in reserves, $12 million in government bonds and $10.6 million in low risk mortgage loans. Out of the $25 million in customers' deposits, Martin holds $15.1 million in the form of certificates of deposit.
- Draw a T-Account balance sheet for Marin Bank.
- Describe the formula for determining Martin Bank's net worth.
- Given the supplied information, determine Martin Bank's net worth. (Show your work.)
- Identify the criteria for classifying a bank as healthy or unhealthy.
- Is Martin Bank healthy or unhealthy? Explain.
- What changing economic factors could cause Martin bank to go bankrupt?
- What steps could Martin Bank take to establish health, maintain current health, or increase its health?