A deposit outflow results in equal reductions in
A)loans and reserves.
B)assets and liabilities.
C)reserves and capital.
D)assets and capital.

Question

Quizplus · Accepted Answer

When a deposit outflow occurs, it means that customers are withdrawing funds from their accounts. This results in a reduction in liabilities for the bank (since it owes less money to its customers) which would lead to a reduction in assets, such as loans, to balance out the balance sheet equation. Therefore, the correct answer is B, as there is an equal reduction in assets (loans) and liabilities (deposits).

A Deposit Outflow Results in Equal Reductions in