CFA Practice Question

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CFA Practice Question

Your parents give you a check for $200, which you deposit in your account. The reserve requirement is 20%. What is the change in the money supply?

A. $0
B. $200
C. $800
Correct Answer: A

There is no effect on the deposits of the banking system, because this is just a transfer between accounts. Thus there is no change in the money supply.

User Contributed Comments 6

User Comment
AlexYuen for $SS to increase, there must be new inputs to the banking system. left pocket pays right pocket does not create new $.
cahiz84 checks and credit cards are not money
neenalisa will the money supply increase if my parents gave me cash of $200 instead of a check?
geofin Only if they took a loan. Borrowing creates new money.
xp_acctant @ geofin - very correct. Loan is key in answering the question.
khalifa92 good point
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