You withdraw $100 from your checking account. How does this affect the money supply and the reserves of your bank?
A) The money supply increases, and the reserves of your bank decline.
B) Both money supply and the reserves of your bank increase.
C) There is no change in the money supply, and the reserves of your bank decline.
D) The money supply decreases, and the reserves of your bank increase.

Question

Quizplus · Accepted Answer

When you withdraw $100 from your checking account, the money supply does not change because the money is not leaving the economy, it is just changing hands from your checking account to your cash in hand. However, the reserves of your bank decline because they must have enough physical cash on hand to fulfill your withdrawal request.

You Withdraw $100 from Your Checking Account