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?

Instructions: In order to receive full credit, you must make a selection for each option. For correct answer(s), click the box once to place a check mark. For incorrect answer(s), click the option twice to empty the box.

• The balance sheet for the bank would reflect a decrease in reserves and a decrease in deposits.
• The balance sheet for the bank would reflect an increase in reserves and an increase in deposits.
• The rise in bank reserves would increase in the quantity of money.
• 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.
• The decline in bank reserves would decrease the quantity of money.
• 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.

Answer 1

1. The balance sheet for the bank would reflect a decrease in reserves and decrease in deposits is correct. This is because of treasury shifted funds from bank to fed means decrease the deposits in bank and reserves also decreases.

2. The given statement is wrong because the treasury shifted funds to fed leads to decreases deposits not increased. and reserves also decreases.

3. the given statements is correct. rise in bank reserves would increase in the quantity of money.

4.No,the given statement is wrong. decrease in reserves would not appear in balance sheet and would not be offset by governments account.

5. Yes, the statement is correct. decline in bank reserves would decrease the quantity of money.

6. yes, the gievn statement is correct. treasury transfer funds to Fed so it will leads to increase in reserves would also appear on the feeds balance sheet, but would be offset by decrease in the goverments account.