Suppose that the Fed buys $1 million of bonds from the First National Bank. If the First National Bank and all other banks use the resulting increase in reserves to purchase securities only and not to make loans, what will happen to checkable deposits? Assume the required reserve ratio is 10 percent.
Answer:Fund available for checkable deposit will be reduced.
Explanation:
The use of the fund from the bond for purchase of security after deducting reserves fund will reduce the amount for checkable deposit which is a demand deposit account.
