Macroeconomics (Book Only)
12th Edition
ISBN: 9781285738314
Author: Roger A. Arnold
Publisher: Cengage Learning
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Question
Chapter 18, Problem 1VQP
To determine
How the capital can be viewed as a buffer against insolvency.
Expert Solution & Answer
Explanation of Solution
The difference between the assets and liabilities of a bank is its capital or total net worth. If the total liabilities of a bank exceed its total assets, then it leads to the problem of bankruptcy. Suppose the assets value of a bank declines, then its positive net worth helps to overcome this problem. A higher net worth of a bank is associated with a bigger buffer against insolvency. In this way, the capital acts as a buffer against insolvency.
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Chapter 18 Solutions
Macroeconomics (Book Only)
Ch. 18.2 - Prob. 1STCh. 18.2 - Prob. 2STCh. 18.2 - Prob. 3STCh. 18.4 - Prob. 1STCh. 18.4 - Prob. 2STCh. 18.7 - Prob. 1STCh. 18.7 - Prob. 2STCh. 18.7 - Prob. 3STCh. 18 - Prob. 1VQPCh. 18 - Prob. 2VQP
Ch. 18 - Prob. 3VQPCh. 18 - Prob. 4VQPCh. 18 - Prob. 5VQPCh. 18 - Prob. 1QPCh. 18 - Prob. 2QPCh. 18 - Prob. 3QPCh. 18 - Prob. 4QPCh. 18 - Prob. 5QPCh. 18 - Prob. 6QPCh. 18 - Prob. 7QPCh. 18 - Prob. 8QPCh. 18 - Prob. 9QPCh. 18 - Prob. 10QPCh. 18 - Prob. 11QPCh. 18 - Prob. 12QPCh. 18 - Prob. 13QPCh. 18 - Prob. 14QPCh. 18 - Prob. 15QPCh. 18 - Prob. 16QPCh. 18 - Prob. 17QPCh. 18 - Prob. 1WNGCh. 18 - Prob. 2WNGCh. 18 - Prob. 3WNGCh. 18 - Prob. 4WNGCh. 18 - Prob. 5WNG
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