Drawing on her account at Regional Bank, Samantha writes a check to Isabella, who deposits the check in her account at Local Bank. Once the check has cleared, which of the following will occur to the reserves of the banking system and the M1 money supply?

Question

Quizplus · Accepted Answer

When Samantha writes a check to Isabella, the reserves in the banking system do not change; they are simply transferred from one bank to another. Similarly, the M1 money supply remains unchanged because the transaction is merely a transfer of funds within the existing money supply.

Drawing on Her Account at Regional Bank, Samantha Writes a Check