If a bank increases the amount of cash it has in its vault,how would this affect the bank's balance sheet?

Question

Quizplus · Accepted Answer

Increasing the amount of cash in the bank's vault would increase its reserves, but since there is no corresponding increase in liabilities, total assets would also increase. Therefore, (A) is the correct answer. Option (B) is incorrect because an increase in reserves should result in a corresponding increase in total assets, but here reserves are indicated to decrease. Option (C) cannot be correct because reserves are expected to increase in this case. Option (D) cannot be right because an increase in reserves should lead to an increase in total assets as well. Finally, option (E) is incorrect because an increase in cash reserves should not lead to a decrease in total assets.

If a Bank Increases the Amount of Cash It Has