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Brief Principles of Macroeconomics...

8th Edition
N. Gregory Mankiw
ISBN: 9781337091985

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BuyFindarrow_forward

Brief Principles of Macroeconomics...

8th Edition
N. Gregory Mankiw
ISBN: 9781337091985
Textbook Problem

Your uncle repays a $100 loan from Tenth National Bank (TNB) by writing a $100 check from his TNB checking account. Use T-accounts to show the effect of this transaction on your uncle and on TNB. Has your uncle’s wealth changed? Explain.

To determine

The impact of repayment of a loan on the wealth of an individual.

Explanation

Money is anything which is accepted as payment to the goods and services from a market. It acts as a medium of exchange, store of value, unit of account, and so forth. Any commodity that is being accepted by the economy for this purpose is considered as money. It is usually metal coins and paper currencies.

When the repayment of a loan from a bank takes place from the checking account that is maintained in the same bank, the individual is reducing the assets as well as the liabilities. The T-accounts of the individual as well as the bank can be written as follows:

Individual
AssetsLiabilities
Before
Checking account      $100Loans      �...

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