CFA Practice Question

There are 341 practice questions for this study session.

CFA Practice Question

Brian takes out $200 from an ATM against his checking account at his bank. He then gives the money to Rick, who deposits the whole $200 in his checking account at his bank (a different one from Brian's). In theory, after the process finishes, the bank reserves will ______ and the M1 money supply will ______.
A. remain the same; remain the same
B. remain the same; decrease
C. decrease; remain the same
Explanation: There should be no change in either bank reserves or M1. The process is just a transfer of money from one bank to another, and these two banks have the same reserve requirement and should maintain identical reserves. M1 remains the same because the total amount of deposits in the economy is the same; the money supply is affected only by injections of money by the Fed.

User Contributed Comments 2

User Comment
gaetmichel What's ATM ? does that show the money withdrawal is M1?
dybacis Automated Teller Machine, Automated Banking Machine, cashpoint, cash machine, cash dispenser.
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