The Fed buys $100 million of government securities from Bank A. What is the effect on Bank A's balance sheet?

Question

Quizplus · Accepted Answer

When the Fed buys $100 million of government securities from Bank A, Bank A's securities decrease by $100 million (as they have sold them to the Fed) and reserves increase by $100 million (as the Fed pays for the securities by increasing Bank A's reserves). Therefore, the correct choice is D.

The Fed Buys $100 Million of Government Securities from Bank