Assume the deposit expansion multiplier is 3.0. If the Treasury borrows $5 billion from the Non-bank public and spends it on the public, bank reserves will
A) rise by $5 billion.
B) fall by $5 billion.
C) rise by $15 billion.
D) not change.

Question

Quizplus · Accepted Answer

When the Treasury borrows $5 billion from the non-bank public and spends it, the money simply moves from the non-bank public to the recipients of the spending, without directly affecting the total reserves in the banking system.

Assume the Deposit Expansion Multiplier Is 3