The central bank requires Southern to hold 10% of deposits as reserves. Southern Bank’s policy prohibits it from holding excess reserves. If the central bank sells $25 million in bonds to Southern Bank which of the following will result?
A. the money supply in the economy decreases
B. Southern’s net worth increases by $25 million
C. decrease in Southern’s bond assets by $25 million
D. increase in Southern’s loan assets of $25 million
Answer:A
The central bank requires Southern to hold 10% of deposits as reserves. Southern Bank’s policy prohibits it from holding excess reserves. If the central bank sells $25 million in bonds to Southern Bank which of the following will result?
A. the money supply in the economy decreases B. Southern’s net worth increases by $25 million C. decrease in Southern’s bond assets by $25 million D. increase in Southern’s loan assets of $25 million
Explanation: Type: Multiple Choice