When an individual sells a $100 bond to the Bank, she may either deposit the cheque she receives or cash it for currency. In both cases ________.

Question

Quizplus · Accepted Answer

When an individual sells a bond to the Bank and either deposits the cheque or cashes it, the central bank's liabilities increase either in the form of deposits or currency in circulation. This increase in central bank liabilities is an increase in high-powered money, which includes both currency in circulation and bank reserves with the central bank.

When an Individual Sells a $100 Bond to the Bank