Final answer:
The question focuses on bank capitalization and its impact on nominal GDP. A central bank increasing the money supply by $100 billion with a velocity of money of 3 would potentially increase the nominal GDP by $300 billion. Additionally, understanding bank capitalization, loan issuance, and reserve requirements provide insight into the banking system's role in the economy.
Step-by-step explanation:
Understanding Bank Capitalization
The question pertains to bank capitalization and involves understanding how a bank raises capital and the effect of such activities on the nominal GDP. When a central bank increases the money supply, in this case by $100 billion, and assuming the velocity of money is 3, there is a potential for the nominal GDP to increase by $300 billion. This is derived from the equation of exchange in macroeconomics, which states that Money Supply (M) multiplied by Velocity of Money (V) equals Nominal GDP (P*T). Therefore, M ($100 billion) * V (3) = $300 billion increase in GDP.
Capitalization such as the historical example of the Bank of the United States proposed by Hamilton, illustrates how a bank can raise funds by selling stocks and issuing loans. Modern-day parallels can be seen where banks can issue loans to induce economic activity and use deposits to create further loans, subject to reserve requirements. This is explained using the Singleton Bank example where it lends out part of its deposits while maintaining the required reserves.
To analyze a bank's financial health, we can utilize a T-account, categorizing assets and liabilities and calculating net worth.