Question

Which of the following tends to decrease when consumers make withdrawals of currency from their bank deposits? Total reserves of banks Total liabilities of the central bank the Fed Total assets of the central bank the Fed The monetary base.

Answer 1

Total reserves of banks

Step-by-step explanation:

To ensure that banks are do not lend all their deposit to the public as loan, they are mandated by the regulatory authority (Federal Reserve or Central Bank) to keep a certain percentage of their deposit liabilities in a liquid form to ensure they are able to meet the daily withdraw request of their customers. The entire amount set aside for this purpose by the banking system is called Total Reserves of Banks.

When consumers make withdrawals of currency from their bank deposits, the total reserves of banks will decrease because the withdraw is coming from the bank reserve. .