If Matt Taylor gets his $800 loan from the Paris First National Bank in cash rather than in the form of a new checkable deposit, the:
A) Paris First National Bank will get $800 in new reserves.
B) Paris First National Bank will not get $800 in new reserves.
C) assets of the Paris First National Bank will increase by $800.
D) assets of the Paris First National Bank will decease by $88.
E) liabilities of the Paris First National Bank will increase by $800.

Question

Quizplus · Accepted Answer

When Matt Taylor gets his $800 loan in cash, the bank's reserves don't change because the bank is simply exchanging one asset (cash) for another asset (loan). Therefore, the Paris First National Bank will not get $800 in new reserves.

If Matt Taylor Gets His $800 Loan from the Paris