A borrower comes into the bank and pays off 100 Rupees of his loan. This was a cash payment by the borrower to the bank. What happens to this bank’s reserves?

Increase

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Cannot be determined

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Decrease

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No impact

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Solution

The correct option is A
Increase

The bank’s excess reserves increase by 100 Rupees because the money did not involve a demand deposit.

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A borrower comes into the bank and pays off 100 Rupees of his loan. This was a cash payment by the borrower to the bank. What happens to this bank’s reserves?

The correct option is A Increase The bank’s excess reserves increase by 100 Rupees because the money did not involve a demand deposit.

The correct option is A
Increase

The bank’s excess reserves increase by 100 Rupees because the money did not involve a demand deposit.