When the Reserve Bank sells $100 million of securities to a bank,the
A)bank's reserves decrease.
B)required reserve ratio decreases.
C)bank's reserves do not change.
D)monetary base increases.
E)money supply increases.

Question

Quizplus · Accepted Answer

When the Reserve Bank sells securities to a bank, it receives payment in the form of reserves. As a result, the bank's reserve balance decreases, implying that option A is correct. Option B is incorrect since there is no mention of changes in the required reserve ratio. Option C is also incorrect because the bank's reserves need to decrease by $100 million. Option D is untrue because the monetary base will remain unaffected until the bank lends out the reserves. Option E is also not correct since the money supply will not be affected until the bank loan out the excess reserves.

When the Reserve Bank Sells $100 Million of Securities to a Bank,the