When the Fed buys a Treasury bill from the public, how does it usually pay for the T-bill?
A)By writing a check on a commercial bank account
B)By printing new Federal Reserve notes
C)By creating new reserves in bank accounts
D)By prepaying taxes into the Treasury's account

Question

Quizplus · Accepted Answer

When the Fed buys a Treasury bill from the public, it usually pays for it by creating new reserves in bank accounts. This means the Fed credits the account of the seller's bank with additional reserves, which increases the bank's ability to make loans and creates new money in the economy. The seller can then withdraw the funds as cash or use them to make electronic payments.

When the Fed Buys a Treasury Bill from the Public