Table 29-1
Effects of an open-market transaction on the balance sheets of banks and the fed (in millions of dollars)
-In Table 29-1, the Federal Reserve System has
A)sold $10 million in government securities to banks, taking payment in cash.
B)sold $10 million in government securities to banks, taking payment from the bank's reserves.
C)purchased $10 million in government securities from banks, paying for them with increases in banks' reserves.
D)purchased $10 million in government securities from banks, paying for them with new Federal Reserve notes.

Question

Table 29-1
Effects of an open-market transaction on the balance sheets of banks and the fed (in millions of dollars)  ​
-In Table 29-1, the Federal Reserve System has
A)sold $10 million in government securities to banks, taking payment in cash. 
B)sold $10 million in government securities to banks, taking payment from the bank's reserves. 
C)purchased $10 million in government securities from banks, paying for them with increases in banks' reserves. 
D)purchased $10 million in government securities from banks, paying for them with new Federal Reserve notes.

Quizplus · Accepted Answer

According to Table 29-1, the Federal Reserve System has purchased $10 million in government securities from banks, paying for them with increases in banks' reserves. This is shown by the increase of $10 million in the "Securities held outright" category under "Assets" and the increase of $10 million in the "Reserve balances" category under "Liabilities and capital" for the Federal Reserve System. Similarly, there is a decrease of $10 million in the "Securities" category under "Assets" for the banks, but an increase of $10 million in the "Reserves" category under "Liabilities and equity."

Table 29-1 Effects of an Open-Market Transaction on the Balance Sheets of Sheets