Identify how the net creation of money occurs

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Reference no: EM133265214

Question: Yellow Bank borrows $25,000 through a loan with Purple Bank (transaction A) and issues $10,000 bonds to Dr Orange (transaction B). Dr Orange is a rich widow who paid for the Yellow Bank bonds with the money of the rents she earned from her property investments in Sydney, money that was sitting in her transactional bank account in Purple Bank.

Yellow Bank buys $400,000 shares just issued by Winnie Company, a honey producer that needs funding to renew its stock of beehives (transaction C). Winnie Company has its transactional bank account in Yellow Bank.

Indicate which part of the story is a case of channelling of funds in the financial system and which $value is channelled. Clearly identify the SSU, the DSU, and if relevant, any financial intermediary. Assess if there is transit of funds. Explain your answer in details.

Indicate which part of the story is a case of funding of economic activity by net creation of private money and which $value is created. Clearly identify how the net creation of money occurs in the banking system in this story. Explain your answer in details.

Reference no: EM133265214

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