Quiz 15: Money Creation

Business

Net worth is calculated as follows: img . When asset is up by $100,000 and net worth up by $20,000 then, liability must be up by $80,000 is calculated as shown below: img

Asset means things owned by the bank or owed to the bank. Liability means the claims of non-owners of the bank against the bank's assets. Net worth is the claims of the owners of the bank against the bank's assets. It is the difference between asset and liability: img A balance must balance because the value of assets must equal the amount of claims against those assets. The major assets and claims on a commercial bank's balance sheet are vault cash, property and equipment, reserves, loans and securities.

Here, before we obtain the actual reserves, we need to obtain the require reserves. The Required Reserves are calculated as follows: img The Actual Reserves are calculated as follows: img