CREATION OF MONEY USING T-ACCOUNTS Chapter 11 Appendix B CREATION OF MONEY USING T-ACCOUNTS

Beginning Balance Assets Liabilities and Net Worth Currency $ 30,000 Checking deposits $150,000 Loans 300,000 Net worth 350,000 Property 170,000 Total assets $500,000 Total liabilities $500,000 and net worth

Transaction 1 Assume that John deposits $10,000 in cash in Textland Bank. Currency and checking deposits both increase by $10,000. Assets Liabilities and Net Worth Currency $ 40,000 Checking deposits $160,000 Loans 300,000 Net worth 350,000 Property 170,000 Total assets $510,000 Total liabilities $510,000 and net worth

Transaction 2 Assume that Textland Bank has a 20% reserve requirement, so required reserves are (.2)x$160,000=$32,000. The bank loans out $8000 in excess reserves to Fred Baker. Assets Liabilities and Net Worth Currency $ 32,000 Checking deposits $160,000 Loans 308,000 Net worth 350,000 Property 170,000 Total assets $510,000 Total liabilities $510,000 and net worth

Transaction 3 Fred buys a $8000 oven from Mary Builder who deposits the $8000 in Textland Bank. With $168,000 in deposits and a 20% reserve requirement, the bank has required reserves of $33,600 and $6400 in excess reserves available for lending. Assets Liabilities and Net Worth Currency $ 40,000 Checking deposits $168,000 Loans 308,000 Net worth 350,000 Property 170,000 Total assets $518,000 Total liabilities $518,000 and net worth