Tom decides to withdraw $300 out of his checking account.The impact of this transaction on the Fed's balance sheet will be:

Question

Quizplus · Accepted Answer

When Tom withdraws $300 from his checking account, the bank will decrease its reserve account by $300 and increase the currency in circulation by $300. This will result in a decrease of reserves liability and an increase in currency liability on the Fed's balance sheet. However, there will be no change in the total assets or total liabilities of the Fed. Hence, the correct choice is A.

Tom Decides to Withdraw $300 Out of His Checking Account