Question

An initial decreasedecrease in a​ bank's reserves will decreasedecrease checkable deposits A. by an amount less than the decreasedecrease in reserves. B. by an amount greater than the decreasedecrease in reserves. C. by an amount equal to the decreasedecrease in reserves. D. An initial decreasedecrease in reserves will increaseincrease checkable deposits.

Answer 1

Answer:

The correct answer is B

Explanation:

Bank reserve is the minimum cash which is required to kept on hand through the financial institutions so that could meet the requirements of central bank.

Checkable deposits is a kind of any demand deposit account in anticipation of the checks or the drafts in any form which will be written. In short, it means that the owner of the account could withdraw funds on demand.

So, if the primary decrease in bank reserve will also decrease the checkable deposit as there would be no cash with bank to provide to customers by the amount that is greater than the decrease in the reserve.