Ekon 1452 prob.1-1

Ekon 1452 prob.1-1 - ECON S-1452 Summer, 2010 Problem Set 1...

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ECON S-1452 Summer, 2010 Problem Set 1 (Due Wednesday, July 7) 1. What are the two forms in which banks can hold reserves? Vault cash and deposits at the FRB. 2. Suppose Tom takes a $100 bill out of his wallet and deposits it in his checking account at Citizen’s Bank. Which one of the following statements most accurately describes what has happened? Explain your answer. I. Tom’s net worth has increased by $100. II. Citizen’s Bank’s assets and its net worth have gone up by $100. III.The total value of Tom’s net worth has not changed. Citizen’s Bank’s assets and liabilities have both increased. IV. Tom’s assets have decreased and Citizen’s Bank’s assets have increased. Answer III. is right since Tom has changed his asset from cash to deposit and citizen’s bank’s liabilities has increased through the deposit, which balance out the initial asset increase through Tom’s $100 in cash. 3. Karen has kept her entire life savings, $50,000, in a floor safe underneath her bed. This morning, she decided to deposit her savings in a checking account at Cambridge Bank. The following assumptions apply to all parts of this question:
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This note was uploaded on 10/21/2010 for the course ECON 1530 taught by Professor Ohly during the Spring '10 term at Dartmouth.

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Ekon 1452 prob.1-1 - ECON S-1452 Summer, 2010 Problem Set 1...

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