Sharon sells a government security worth $4,600,000 to the Federal Reserve Bank of Kansas City. She then deposits the funds in her checking account at First Commerce Bank. Her checking account had a $150,000
Balance before this deposit. The reserves of First Commerce Bank would
A) increase by $4,750,000.
B) increase by $4,600,000.
C) decrease by $4,600,000.
D) decrease by $4,450,000.

Question

Quizplus · Accepted Answer

When Sharon sells the government security worth $4,600,000 to the Federal Reserve Bank of Kansas City, the reserves of the bank increase by $4,600,000. When she deposits the funds in her checking account at First Commerce Bank, the bank's reserves don't change as the deposit represents a liability for the bank. Therefore, the reserves of First Commerce Bank would increase by $4,600,000. The balance of Sharon's checking account would now be $4,750,000 ($150,000 + $4,600,000).

Sharon Sells a Government Security Worth $4,600,000 to the Federal