Assets Liabilities and Net Worth Reserves $2,000 Deposits $20,000 Loans $25,000

Question

Assets Liabilities and Net Worth

Reserves $2,000 Deposits $20,000

Loans $25,000 Net Worth $30,000

The above table shows a part of the balance sheet for the entire banking system. Assume that the banking system is fully loaned out. TheFed makes a discount loan of $2,000.How much money will be created in the economy if banks do not keep anyexcess reservesand people do not hold any currency?

A.$2,000

B.$4,000

C.$5,000

D.$10,000

E.None of the above.

can you please show the specific way to calculate this value?

Explanation / Answer

Net worth= Assets- Liabilities

Assets calculation= Reserves+ Loans- loan discount

—» Assets= 2000+25000-2000= 25000

Liabilities= deposits = 20000

Hence, on solving the net worth, it should be 25000-20000 i.e. 5000$.

Hence, the answer should be E (none of the above), as the net worth should be $5000 and not 30000$.

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