When a bank borrows from the Federal Reserve the bank
A) receives a new deposit of legal reserves at the Federal Reserve.
B) creates a new checkable deposit payable to the Federal Reserve.
C) normally will do so because it has excess reserves.
D) loses reserves equal to the amount of the loan.

Question

Quizplus · Accepted Answer

When a bank borrows from the Federal Reserve, it receives a new deposit of legal reserves at the Federal Reserve. This increases the bank's reserves, allowing it to meet reserve requirements or extend more loans.

When a Bank Borrows from the Federal Reserve the Bank