DodgeBank has the following items on its balance sheet 10m loans to corporations 5m loans to...

 

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DodgeBank has the following items on its balance sheet £10m loans to corporations £5m loans to households £15m invested in government bonds £30m retail current account deposits (deposits by general public with DodgeBank) £5m commercial current account deposits (deposits by companies with DodgeBank) £10m tangible assets and property £ 5m cash in vaults £ 5m reserve deposits with Bank of England (deposits by Dodgebank) £10 borrowing by DodgeBank in money market a) Construct a balance sheet for DodgeBank with each of the above items included. b) Calculate Dodge Bank's net worth and show where it appears on the balance sheet. c) Which of DodgeBank balance sheet items should be included in a standard definition of "bank money"? d) DodgeBank makes a personal loan of £10,000 to Ms Take, and credits her current account with the amount of the loan. Describe the initial impact on DodgeBank's balance sheet, the money supply, and the net worth of both DodgeBank and Ms Take. e) Ms Take then withdraws £10,000 in cash and buys a second hand car from Mr Eyus who immediately deposits it in his current account with another bank, RunBank. What is the impact on DodgeBank's balance sheet, and on the aggregate money supply? f) How would your answer change if Ms Take had paid by debit card? DodgeBank has the following items on its balance sheet £10m loans to corporations £5m loans to households £15m invested in government bonds £30m retail current account deposits (deposits by general public with DodgeBank) £5m commercial current account deposits (deposits by companies with DodgeBank) £10m tangible assets and property £ 5m cash in vaults £ 5m reserve deposits with Bank of England (deposits by Dodgebank) £10 borrowing by DodgeBank in money market a) Construct a balance sheet for DodgeBank with each of the above items included. b) Calculate Dodge Bank's net worth and show where it appears on the balance sheet. c) Which of DodgeBank balance sheet items should be included in a standard definition of "bank money"? d) DodgeBank makes a personal loan of £10,000 to Ms Take, and credits her current account with the amount of the loan. Describe the initial impact on DodgeBank's balance sheet, the money supply, and the net worth of both DodgeBank and Ms Take. e) Ms Take then withdraws £10,000 in cash and buys a second hand car from Mr Eyus who immediately deposits it in his current account with another bank, RunBank. What is the impact on DodgeBank's balance sheet, and on the aggregate money supply? f) How would your answer change if Ms Take had paid by debit card?

Answer rating: 100% (QA)

Answer Solution a Balance sheet Assets Total Equity Liabilities Total Loans to Corporations 10 Publi... View the full answer