Sarah, a customer of a bank, transfers $10,000 from her checking account to her money-market deposit account. Which of the following changes will be reflected in Sarah's bank's balance sheet?
A)Reserves decrease by $10,000.
B)Transactions deposits increase by $10,000.
C)Nontransactions deposits decrease by $10,000.
D)Borrowings increase by $10,000.

Question

Quizplus · Accepted Answer

When Sarah transfers $10,000 from her checking account (a transactions deposit) to her money-market deposit account (a nontransactions deposit), the bank's balance sheet reflects a decrease in transactions deposits and an increase in nontransactions deposits. The total amount of deposits the bank holds does not change; rather, the composition of those deposits changes. Therefore, nontransactions deposits decrease by $10,000 is incorrect; it should increase, making all provided options incorrect in the context of the explanation.

Sarah, a Customer of a Bank, Transfers $10,000 from Her