As a result of the Fed's sale of $3,000 worth of government securities to First Main Street Bank, the bank becomes reserve deficient.
Suppose that Neha, a First Main Street Bank customer, repays back the $3,000 loan she took out a few months ago.
Which of the following most accurately describes First Main Street Bank's actions?
The bank keeps the $3,000 as reserves.
The bank creates a $42,000 loan.
The bank creates a $3,000 loan.
The bank keeps the $450 as reserves.