When you make a deposit of 300 in a bank question 16 options...

when you make a deposit of $300 in a bank Question 16 options: assets in reserves of banks increase by $300 and liabilities in deposits increase by $300 assets in securities of banks increase by $300 and liabilities in deposits increase by $300 assets in deposits of banks increase by $300 and liabilities in reserves of banks increase by $300 none of the answers are correct

Transcript

00:01 So here we've got a question about the financial system.

00:02 We start off putting 150 in the bank.

00:05 And when that money is in the bank, the bank has a rule where it's going to hold reserves equal to 12 .5 % of the deposit.

00:13 So in the first branch of this tree, the bank is going to sit on 12 .5 % of your cash, right? but if the bank is only going to sit on 12 .5 % of your cash, it's going to lend out the remaining amount of cash, right? that that lending is going to have to deploy the cash because banks don't want to sit on cash.

00:38 Cash doesn't earn interest.

00:39 They want to lend and earn interest.

00:41 So now the usual assumption is that this new lending gets redeposited or kept in the financial system.

00:51 In general, people don't keep their loans in cash, right? if you lend a million dollars to a construction company, the construction company doesn't come up and pick up a million dollars in cash.

01:03 The construction company just records a million dollars in its bank account and it uses that bank account to pay its workers, to buy materials.

01:12 It doesn't actually convert it to cash, right? so i'm going to assume that there's no cash drain.

01:19 We are told here nothing about cash holding.

01:22 So i'm going to assume that everyone just keeps their money in the bank account.

01:26 If that's true, it's like after the bank makes the loan, you end up with 150 outside of what was not kept as reserves as a new deposit, right? and it's probably not the same bank.

01:44 It could easily be a different bank, right? there's no reason that you have to, you know, deposit the money of the same bank you took a loan from...

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