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Question
The Fed sells a U.S. government security and a bank dealer writes a check for the amount. When the check clears,
A) reserves remain unchanged because the decrease of reserves at the dealerʹs bank is offset by an increase in the reserves at the Fed.
B) reserves have fallen by the amount of the check because the Fed clears the check by reducing the bankʹs deposits at the Fed.
C) reserves increase by the amount of the check because the Fed clears the check by increasing the amount of the bankʹs deposits with the Fed.
D) reserves have fallen by the amount of the reserves times the reserve ratio, and the money supply falls by the difference between the amount of the check and the fall in the reserves.
Answer
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