Assignment 2
Assignment 2
THIS ASSIGNMENT INCLUDING THE WORKSHEETS, VIDEOS AND POSSIBLE TEXTBOOK READING IS THE EQUIVALENT OF THREE CLASSES
This is the Bank Balance Sheet
It is one of the more difficult concepts to understand because it has numbers as well as some accounting principles. Do your best with this, watch the videos, read the textbook and look at the worksheet. If you are unable to comprehend it don’t worry about it, at least you will have seen it when we return to school.
First you must understand the idea that a Balance sheet must balance. On one side are assets (things that have worth) on the other side are liabilities (what you owe) and owners equity (the part of the asset you own).
Let’s take something simple like a car.
On the asset side is the value of the car (let’s say $10,000)
Let’s say you owe $7,500 on the car, (this would be your liability) and the other $2,500 is your owner’s equity (the part of the car you actually own).
Assets = Liabilities + Owner’s Equity
Car $10,000 Loan $7,500 $2,500
A bank has the same things, let’s continue to keep it simple. A bank receives a deposit of $100,000. As we know the bank must keep some of the deposit in reserves, these are called required reserves. The rest of the money is the excess reserves which they can loan out.
Assets = Liabilities
Required Reserves $20,000 Demand Deposits $100,000
Excess Reserves $80,000
As we can see the reserve requirement in our example is 20%. Sometimes the problem will give you the reserve requirement, other times they will make you calculate it. There are many variations of the bank balance sheet, just remember that the bank can only loan out their excess reserves. ALWAYS remember that the only things which the bank has to keep required reserves on are the Demand Deposits.
The deposit expansion multiplier is a quick way to figure out how much this bank can create by loaning out money. The multiplier is 1 divided by the reserve requirement. In this case it is 1 divided by .2 which equals 5. Therefore we take the amount of excess reserves and multiply it by the multiplier (5) to come to the conclusion that this bank because of the $100,000 deposit can create $80,000 x 5 or $400,000.
This is also in chapter 29 of the textbook beginning on page 627. Specifically this information begins on page 636.
This begins on the bottom of page 73 in the $5 notes.
Youtube videos The first video is for the deposit expansion multiplier, the second video is for bank balance sheets
www.youtube.com/watch?v=JG5c8nhR3LE&fbclid=IwAR3HW5J7jFIUhM9Pkt2FngXMk8tQq7LDGpdC4aKowsWvMHmc0z2rud-KzvQ
Awww.youtube.com/watch?v=aZA6nLTHQuE&fbclid=IwAR3dE5I5o2am9myg74oho2VshSjT5bBFMdlVHYDKC7RMHUkCqjah8Z16hNA
Worksheets
documentcloud.adobe.com/link/track?uri=urn%3Aaaid%3Ascds%3AUS%3Ac719777b-acb3-4278-b9e6-8aa4caabec87
For the second worksheet begin with the assumption that the Required Reserve is 10%
documentcloud.adobe.com/link/track?uri=urn%3Aaaid%3Ascds%3AUS%3Af0c9c87d-631a-424f-82c5-32a95b34fc8a
THIS ASSIGNMENT INCLUDING THE WORKSHEETS, VIDEOS AND POSSIBLE TEXTBOOK READING IS THE EQUIVALENT OF THREE CLASSES
This is the Bank Balance Sheet
It is one of the more difficult concepts to understand because it has numbers as well as some accounting principles. Do your best with this, watch the videos, read the textbook and look at the worksheet. If you are unable to comprehend it don’t worry about it, at least you will have seen it when we return to school.
First you must understand the idea that a Balance sheet must balance. On one side are assets (things that have worth) on the other side are liabilities (what you owe) and owners equity (the part of the asset you own).
Let’s take something simple like a car.
On the asset side is the value of the car (let’s say $10,000)
Let’s say you owe $7,500 on the car, (this would be your liability) and the other $2,500 is your owner’s equity (the part of the car you actually own).
Assets = Liabilities + Owner’s Equity
Car $10,000 Loan $7,500 $2,500
A bank has the same things, let’s continue to keep it simple. A bank receives a deposit of $100,000. As we know the bank must keep some of the deposit in reserves, these are called required reserves. The rest of the money is the excess reserves which they can loan out.
Assets = Liabilities
Required Reserves $20,000 Demand Deposits $100,000
Excess Reserves $80,000
As we can see the reserve requirement in our example is 20%. Sometimes the problem will give you the reserve requirement, other times they will make you calculate it. There are many variations of the bank balance sheet, just remember that the bank can only loan out their excess reserves. ALWAYS remember that the only things which the bank has to keep required reserves on are the Demand Deposits.
The deposit expansion multiplier is a quick way to figure out how much this bank can create by loaning out money. The multiplier is 1 divided by the reserve requirement. In this case it is 1 divided by .2 which equals 5. Therefore we take the amount of excess reserves and multiply it by the multiplier (5) to come to the conclusion that this bank because of the $100,000 deposit can create $80,000 x 5 or $400,000.
This is also in chapter 29 of the textbook beginning on page 627. Specifically this information begins on page 636.
This begins on the bottom of page 73 in the $5 notes.
Youtube videos The first video is for the deposit expansion multiplier, the second video is for bank balance sheets
www.youtube.com/watch?v=JG5c8nhR3LE&fbclid=IwAR3HW5J7jFIUhM9Pkt2FngXMk8tQq7LDGpdC4aKowsWvMHmc0z2rud-KzvQ
Awww.youtube.com/watch?v=aZA6nLTHQuE&fbclid=IwAR3dE5I5o2am9myg74oho2VshSjT5bBFMdlVHYDKC7RMHUkCqjah8Z16hNA
Worksheets
documentcloud.adobe.com/link/track?uri=urn%3Aaaid%3Ascds%3AUS%3Ac719777b-acb3-4278-b9e6-8aa4caabec87
For the second worksheet begin with the assumption that the Required Reserve is 10%
documentcloud.adobe.com/link/track?uri=urn%3Aaaid%3Ascds%3AUS%3Af0c9c87d-631a-424f-82c5-32a95b34fc8a