If a Fed __________ other than bank reserves falls and there are no offsetting entries elsewhere on the Fed's balance sheet, then bank reserves must __________.
A) asset; fall
B) asset; rise
C) liability; fall
D) liability; rise

Question

Quizplus · Accepted Answer

The correct answer is D because if a Fed liability other than bank reserves falls and there are no offsetting entries elsewhere on the Fed's balance sheet, bank reserves must rise to balance the Fed's balance sheet. This is because liabilities reflect the amount of currency and deposits that the Fed owes to others, and bank reserves are a liability of the Fed. Therefore, as liabilities fall, reserves must rise to balance the books.

If a Fed __________ Other Than Bank Reserves Falls and There