Eco Formative Assignment

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| FORMATIVE WORK FOR ECONOMICS | Yixiao Wang 2014-3-12 | Question 1 PAGE 2-3 Question 2 PAGE 3-4 Question 3 PAGE 4-7 Eco formative assignment At the beginning the balance sheet of the bank are shown below, Assets | Liabilities | Cash 240 | Deposits 240 | Total assets 240 | Total liabilities 240 | Because the M4 equals to the money hold by public + private sector bank and building society shares and deposits + sterling certificates of deposits. So at this stage, the M4=240 And M0 equals to the money held by public + sterling certificates of deposit + private sector bank and building society shares and deposits. M0 also equal to 240. Assets | Liabilities | Cash 24 | Deposits 240 | Loan to public (A) 216 | | Total assets 240 | Total liabilities 240 | When the bank start to compute a loan, it should keep a minimum amount of cash as a reserve, in the situation the reserve ratio is 10%, so the maximum amount of loan should be 240* (100%-10%) = 216 and reserves is 240 - 216 = 24. M4 is the deposits and currency which is 24 + 216 + 240 = 456 now M0 still keeps 240 Assets | Liabilities | Cash 45.6 | Deposits 456 ( 240+216) | Loan to public (A) 216 | | Loan to public (B) 194.4 | | Total assets 456 | Total liabilities 456 | If the public (A) save all its loan into the bank again, the bank can make another loan to the public (B) now, and also keep another reserves, which is 216*10%=21.6, and the loan for public (B) will be 216 - 21.6 = 194.4 M4 now equal to 240 + 216+ 194.4 = 650.4 M0 equal to 240 Assets | Liabilities | Cash 65.04 | Deposits 650.4 (240 + 216 + 194.4) | Loan to public (A) 216 | | Loan to public (B) 194.4 | | Loan to public (C) 174.96 | | Total assets 650.4 | Total liabilities 650.4 | The public (B) again save

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