Unformatted text preview: safe place to keep their money. Whenever a person deposits some money, the bank keeps the money in its vault until the depositor comes to withdraw it or writes a check against his or her balance. Deposits that banks have received but have not loaned out are called reserves. In this imaginary economy, all deposits are held as reserves, so this system is called 100-percent-reserve banking. We can express the financial position of First National Bank with a T-account, which is a simplified accounting statement that shows changes in a bank’s assets and liabilities. Here is the T-account for First National Bank if the economy’s entire $100 of money is deposited in the bank: FIRST NATIONAL BANK A SSETS L IABILITIES Reserves $100.00 Deposits $100.00 ”I’ve heard a lot about money, and now I’d like to try some.” reserves deposits that banks have received but have not loaned out...
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- Spring '10
- Economics, Cheque, Fractional-reserve banking