If the Fed credits the payee bank on a check for $10,000 before it debits the payor bank,
A)the reserves of the payee bank will have risen by $10,000, but the monetary base will have been unaffected.
B)the reserves of the payor bank will have risen by $10,000, but the monetary base will have been unaffected.
C)the monetary base will have fallen by $10,000.
D)the reserves of the payee bank and the monetary base will each have risen by $10,000.

Question

Quizplus · Accepted Answer

When the Fed credits the payee bank before debiting the payor bank, the reserves of the payee bank increase by $10,000, and since the Fed's action increases the reserves in the banking system before removing an equal amount from the payor bank, the monetary base temporarily increases by the same amount.

If the Fed Credits the Payee Bank on a Check