FORMATIVE WORK FOR ECONOMICS Ruoying Huang

Contents Page I) Abstract 3
II) Main body 1 The Balance Sheet of the Bank 4 2 Explain briefly how open market operations work. 6 3 Assuming the economy starts of at recession illustrate the effects upon the economy of a monetary expansion. 7
III) Bibliography 11

Abstract
This essay presents knowledge about the balance sheet of the bank which shows how the re-depositing works, and how the money multiplier works in the first part. In the second, this essay briefly explains the process of open market operation. Last but not least, the third part tells when the economy in a monetary expansion, the change of interest rate, unemployment rate, price level and output.

1) The Balance Sheet of the Bank

At the beginning, suppose that there is only one bank in the market. Now, the initial deposits in the bank are £240, and the bank decides to use this deposit to make loans to the public. The bank set its required reserve ratio at 10%. We can see the initial balance sheet of the bank below. Assets (£) | Liabilities (£) | Cash 240 | Deposit 240 | Total assets 240 | Total liabilities 240 |

Assets (£) | Liabilities (£) | Cash 24 | Deposit 240 | Loan to John 216 | | Total 240 | Total 240 |
Because the required reserve ratio is 10%, the bank needs to keep £24(240×10%=24) as reserves. And there are 216 pounds can make loans. Suppose we provide a loan that is 216 pounds to Mr. John, the balance sheet will become:
Due to the