For the following seven questions, use the following bank balance sheet. Values are millions of dollars.

-If $100 in transaction deposits were withdrawn and the bank sold the minimum amount of bonds to meet the reserve requirement, what is the value of the bonds remaining on the balance sheet if there were no other changes?
A) $320
B) $340
C) $400
D) none of the above

Question

For the following seven questions, use the following bank balance sheet. Values are millions of dollars.
 
-If $100 in transaction deposits were withdrawn and the bank sold the minimum amount of bonds to meet the reserve requirement, what is the value of the bonds remaining on the balance sheet if there were no other changes?
A) $320 
B) $340 
C) $400 
D) none of the above

Quizplus · Accepted Answer

The bank needs to maintain a reserve requirement, which is a percentage of the transaction deposits. If $100 is withdrawn, the bank must sell bonds to meet this requirement. Assuming the reserve requirement is 10%, the bank needs $10 in reserves for the $100 withdrawn. If the initial bonds were $330, selling $10 worth of bonds leaves $320.

For the Following Seven Questions, Use the Following Bank Balance