Table 29-8
-Refer to Table 29-8. The required reserve ratio is 12 percent and First National Bank sells $120 of its short-term securities to the Federal Reserve. This action will
A)increase First National's reserves by $120. Its excess reserves are $240.
B)decrease First National's reserves by $120. Its excess reserves are $0.
C)increase First National's loans by $120. Its reserves decrease by $120.
D)decrease First National's loans by $120. Its reserves increase by $120.

Question

Table 29-8 
-Refer to Table 29-8. The required reserve ratio is 12 percent and First National Bank sells $120 of its short-term securities to the Federal Reserve. This action will
A)increase First National's reserves by $120. Its excess reserves are $240. 
B)decrease First National's reserves by $120. Its excess reserves are $0. 
C)increase First National's loans by $120. Its reserves decrease by $120. 
D)decrease First National's loans by $120. Its reserves increase by $120.

Quizplus · Accepted Answer

First National's reserves will increase by $120 because it sold $120 of its short-term securities to the Federal Reserve. The required reserve ratio is 12 percent, so First National's excess reserves will be $240 ($120 / 0.12 = $240).

Table 29-8 -Refer to Table 29-8. the Required Reserve Ratio Is 12