At the same time bank B,compared to its original position,has had its
A) cash holdings increased by $8,750.
B) reserve requirements increased by $8,750.
C) reserves increased by $8,750.
D) net worth increased by $8,750.
E) loans increased by $8,750.

Question

Quizplus · Accepted Answer

Bank B's reserves have increased by $8,750 due to the deposit of $10,000 in cash by Bank A. This increase in reserves can be used to make new loans or meet liquidity requirements. The other options are not correct. Bank B's cash holdings would not increase by the same amount deposited by Bank A since some of that cash would be held as reserves. Bank B's reserve requirements would not increase because reserve requirements are set by the central bank based on the bank's deposits, not on the transfers made between banks. Bank B's net worth would not necessarily increase by exactly the same amount as the increase in reserves, as net worth is the difference between assets and liabilities and can be affected by other factors. Lastly, loans would not increase by the same amount as the increase in reserves since banks use a fractional reserve system and loans are created based on the deposits received, not the reserves held.

At the Same Time Bank B,compared to Its Original Position,has