Classify each of these transactions as an asset, a liability, or neither for each of the “players” in the money supply process—the federal reserve, banks, and depositors. a. You get a $10,000 loan from the bank to buy an automobile. b. You deposit $400 into your checking account at the local bank. c. The Fed provides an emergency loan to a bank for $1,000,000. d. A bank borrows $500,000 in overnight loans from another bank. e. You use your debit card to purchase a meal at a restaurant for $100.
Question
Classify each of these transactions as an asset, a liability, or neither for each of the “players” in the money supply process—the federal reserve, banks, and depositors. a. You get a 400 into your checking account at the local bank. c. The Fed provides an emergency loan to a bank for 500,000 in overnight loans from another bank. e. You use your debit card to purchase a meal at a restaurant for $100.
Solution
Sure, here are the classifications for each transaction:
a. You get a $10,000 loan from the bank to buy an automobile.
- Federal Reserve: Neither
- Banks: Asset (they are lending money and will receive interest)
- Depositors (You): Liability (you owe the bank money)
b. You deposit $400 into your checking account at the local bank.
- Federal Reserve: Neither
- Banks: Liability (they owe you money)
- Depositors (You): Asset (you have more money in your account)
c. The Fed provides an emergency loan to a bank for $1,000,000.
- Federal Reserve: Asset (they are lending money and will receive interest)
- Banks: Liability (they owe the Fed money)
- Depositors: Neither
d. A bank borrows $500,000 in overnight loans from another bank.
- Federal Reserve: Neither
- Banks: Both an asset and a liability (one bank owes money, the other bank will receive money)
- Depositors: Neither
e. You use your debit card to purchase a meal at a restaurant for $100.
- Federal Reserve: Neither
- Banks: Neither (they are just facilitating the transaction)
- Depositors (You): Decrease in Asset (you have less money in your account)
Similar Questions
The banking system increases the money supply by creating Group of answer choicescheckable deposits.currency.checkable deposits and currency.Federal Reserve Notes.
Banks’ major use of funds is:
When $1 million is deposited at a bank, the required reserve ratio is 20 percent, and thebank chooses not to hold any excess reserves but makes loans instead, then, in the bank'sfinal balance sheetA) the assets at the bank increase by $800,000.B) the liabilities of the bank increase by $1,000,000.C) the liabilities of the bank increase by $800,000.D) reserves increase by $160,000.
Reserves of cash kept with itself by a bank to meet its payment requirements is called
Describe how each of the following can affect the money supply: (a) the central bank; (b)banks; and (c) depositors
Upgrade your grade with Knowee
Get personalized homework help. Review tough concepts in more detail, or go deeper into your topic by exploring other relevant questions.