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Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383

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BuyFindarrow_forward

Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383
Textbook Problem

Bank A finds that many of the loans it extended to individuals are not being paid back. How do the defaults affect bank A’s capital, or net worth?

To determine

Identify the impact of unpayable loans on the bank’s capital.

Explanation

The capital of the bank is equal to the difference between the bank’s assets and the liabilities. Therefore, when the people make delay to pay back the amount of loans, the value of assets will decline. That means, the difference between the assets and liabilities will decline...

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