A commercial bank buys a $50,000 government security from a securities dealer. The bank pays the dealer by increasing the dealer's checkable deposit balance by $50,000. The money supply has

Question

Quizplus · Accepted Answer

When the commercial bank buys a government security from a securities dealer, the bank pays the dealer by increasing the dealer's checkable deposit balance by $50,000. This increases the overall money supply in the economy by $50,000 because checkable deposits are included in the definition of the money supply. Therefore, the correct answer is C.

A Commercial Bank Buys a $50,000 Government Security from a Securities