When you deposit $50 in your account at First National Bank and a $100 cheque you have written on this account is cashed at Chemical Bank, then ________.

Question

Quizplus · Accepted Answer

When you deposit $50 in your account at First National Bank, the bank's liabilities and reserves both increase by $50. However, when a $100 cheque written on this account is cashed at Chemical Bank, the reserves at First National fall by $100 (because they need to use these reserves to cover the cheque), which effectively cancels out the $50 deposit. Therefore, the net impact is a $50 decrease in First National's reserves, which is the same as a $50 decrease in their assets. The assets and liabilities of Chemical Bank are not affected by this transaction.

When You Deposit $50 in Your Account at First National