Which of the following will tend to decrease the excess reserves of the commercial banking system?
A)The central bank buys bonds from the public.
B)The central bank sells bonds to a commercial bank.
C)The central bank reduces its discount rate.
D)The central bank decreases the required reserve ratio.

Question

Which of the following will tend to decrease the excess reserves of the commercial banking system?
A)​The central bank buys bonds from the public.
B)​The central bank sells bonds to a commercial bank.
C)​The central bank reduces its discount rate.
D)​The central bank decreases the required reserve ratio.

Quizplus · Accepted Answer

When the central bank sells bonds to a commercial bank, the commercial bank will have to give money to the central bank to purchase those bonds. This decreases the excess reserves of the commercial banking system. A, C, and D would all tend to increase the excess reserves of the commercial banking system.

Which of the Following Will Tend to Decrease the Excess