A chartered bank sells a $10,000 government securities to a securities dealer.The dealer pays for the bond in cash, which the bank adds to its vault cash.As the result of this single transaction the money supply has:

Question

Quizplus · Accepted Answer

When the chartered bank sells the government securities to the securities dealer, it receives cash in exchange. As a result, the bank's vault cash increases by $10,000. However, this does not necessarily mean that the money supply has increased, as the money supply is determined by the amount of money in circulation among households and businesses. Since the transaction involves the sale of a government security, the money supply may not be affected unless the securities dealer uses the cash to purchase goods or services, thereby increasing the circulation of money in the economy. Thus, the correct answer is B, as the money supply has decreased by the amount of the sale ($10,000).

A Chartered Bank Sells a $10,000 Government Securities to a Securities