Final answer:
Singleton Bank's balance sheet modification, due to a business plan change, affects its assets by adding a $9 million loan to Hank's Auto Supply and influences First National's reserves and deposits. This demonstrates the interconnectedness of banking transactions and their impact on financial statements and the economy.
Step-by-step explanation:
When Singleton Bank alters its business plan, significant adjustments are made to its balance sheet. As part of this change, Singleton Bank now lists a loan to Hank's Auto Supply, which is considered an asset because of the interest income it is projected to yield. This loan represents $9 million on the balance sheet, marked as an asset for Singleton Bank, and upon disbursement via a cashier's check, Hank's Auto Supply deposits it into their regular checking account at First National. This results in a growth of $9 million in both reserves and deposits for First National. According to the scenario outlined, First National, upon receiving these deposits, has a reserve requirement and is obligated to hold 10% of the deposit, i.e., $900,000, in reserves while being free to loan out the remaining $8.1 million.
This information illustrates how one financial transaction can alter not just the ledger of one bank but also impact the financial statements of another. The transaction reflects a ripple effect, leading to changes in bank reserves, loanable assets, and overall balance sheets. Thus, a bank's lending activity has a direct effect on the amount of money in circulation within the economy and its ability to facilitate further loans.