The U.S. Treasury maintains accounts at commercial banks. What would be the cons
ID: 1165052 • Letter: T
Question
The U.S. Treasury maintains accounts at commercial banks. What would be the consequences for the money supply if the Treasury shifted funds from one of those banks to the Fed? Answer yes or no to each of the following:
-The decrease in reserves would also appear on the Fed's balance sheet, but would be offset by an increase in the government's account.unanswered
-The balance sheet for the bank would reflect a decrease in reserves and a decrease in deposits.unanswered
-The decline in bank reserves would decrease the quantity of money.unanswered
-The balance sheet for the bank would reflect an increase in reserves and an increase in deposits.unanswered
-The increase in reserves would also appear on the Fed's balance sheet, but would be offset by a decrease in the government's account.unanswered
-The rise in bank reserves would increase in the quantity of money.
Explanation / Answer
1.
No
There will be an increase in the reserve in the balance sheet of the Fed.
2.
Yes
Funds are withdrawn from the bank. So, it will decrease the reserve as well as decrease the liability also.
3.
Yes
It will negatively affect the lending and money creation ability of the bank.
4.
No
There will be decrease to the asset and liability, rather increase.
5.
Yes
6.
No
It will not increase the money supply.
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