When a bank receives deposits,
A)it must hold the entire amount as reserves in case of withdrawal.
B)the Fed requires it to hold only a small percentage as reserves.
C)it and it alone decides how much it will hold as reserves.
D)its liabilities increase in amount but its assets do not change.
E)its assets increase in amount but its liabilities do not change.

Question

Quizplus · Accepted Answer

The Federal Reserve requires banks to hold only a small percentage of deposits as reserves, known as the reserve requirement. This means that banks can use a portion of the deposits to make loans or invest in other assets. Therefore, when a bank receives deposits, its liabilities increase, but its assets also increase by the amount of the deposits.

When a Bank Receives Deposits