Question

Suppose you decide to withdraw​ $100 in cash from your checking account. which one of the following choices accurately shows the effect of this transaction on your​ bank's balance sheet:_________.
a. Your​ bank's balance sheet shows a decrease in reserves by​ $100 and an increase in deposits by​ $100.
b. Your​ bank's balance sheet shows an increase in reserves by​ $100 and a decrease in deposits by​ $100.
c. Your​ bank's balance sheet shows an increase in reserves by​ $100 and an increase in deposits by​ $100.
d. Your​ bank's balance sheet shows a decrease in reserves by​ $100 and a decrease in deposits by​ $100.

Answer 1

Answer:

d. Your bank's balance sheet shows a decrease in reserves by $100 and a decrease in deposits by $100.

Explanation:

A checking account represents a  bank account which provides greater liquidity and convenience with respect to withdrawals and deposits. Such accounts are usually maintained by financial institutions.

A checking account allows the account holder to withdraw and deposit as many times as per the need unlike a savings account whereby some restriction is placed.

In the given case, withdrawal of cash from bank would reduce the balance of deposits. Deposits represent a liability to the bank as it's an obligation to be met.

Banks are required to maintain reserves as a proportion of their deposits. So when deposits get reduced, so will the reserves.