BUSN 5620 Unit 6 Personal Assignment

BUSN 5620 Unit 6 Personal Assignment - Lakisah Mikell BUSN...

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Lakisah Mikell BUSN 5620 Unit 6 Personal Assignment Problem #1 You have just inherited $100,000 from your rich Uncle Sam. Being the conservative sort, you rush to your local bank and deposit the entire windfall. The reserve requirement is currently 10 percent. What is the immediate impact on the balance sheet of the bank? Mention each account affected and the appropriate amount. Also, assuming your bank lends out money to the extent allowed by the law, how much will the money supply grow beyond the initial $100,000 deposit? By depositing the $100,000, the bank must hold the reserve requirement of the deposit which equals $10,000. This means that there is $90,000 in excess reserves left. When deposited into the bank, the $100,000 is placed on the liability side of the balance sheet. The 10% reserve requirement will be located on the asset side along with the $90,000 in excess reserves. The total assets will equal the total liabilities. After the $100,000 is deposited, it has no immediate effect on the money supply because it has already been counted as part of the money supply as cash held by the public. When cash or coins is deposited in a bank, the composition of the money supply changes, not the size. While I may be $100,000 less in cash, I’ve gained $100,000 in transaction deposits. No money was lost or created with the deposit. Problem #2 Explain thoroughly why credit cards are not technically money. Credit cards aren’t technically considered money because the credit cards themselves are not a store of value. Credit card balances must be paid by consumers with either check or cash in order to receive the line of credit. Also, credit card companies charge various fees and interest rates for their services. While they can be used as a medium of exchange, credit cards are simply
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This note was uploaded on 05/12/2010 for the course BUSN 5620 taught by Professor N/a during the Fall '09 term at Webster.

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BUSN 5620 Unit 6 Personal Assignment - Lakisah Mikell BUSN...

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