ECON-UA 1 Lecture 29: 29

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29
Balance Sheet
Assets Liabilities
$25M
property&building
s
$140M IOUs
$3M cash in vault
(reserves)
$7M in account
with fed (reserves)
—total assets:
$175M
$100M in
checking
accounts
$57.5M other
liabilities
(borrowed funds +
other non-
checking
deposits)
$17.5M
shareholder’s
equity
—total liability +
SE: $175M
IOUs- government bonds, corporate bonds, student loans
what happens when defaults are 10M
shareholder’s equity goes down by 10M, remaining with 7.5M
*Defaults can lead to insolvency
$40 million in IOUs become worthless
updated balance sheet:
Assets Liabilities
$25M
property&building
s
$100M IOUs
$3M cash in vault
(reserves)
$7M in account
with fed (reserves)
—total assets:
$135M
$100M in
checking
accounts
$57.5M other
liabilities
(borrowed funds +
other non-
checking
deposits)
-$22.5M
shareholder’s
equity
—total liability +
SE: $135M
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