Which among the following will happen if the Fed buys bonds from a private bank?
A) The Fed's total liabilities will increase.
B) The Fed's total assets will decrease.
C) The private bank's total assets will increase.
D) The private bank's total assets will decrease.

Question

Quizplus · Accepted Answer

When the Fed buys bonds from a private bank, it pays the bank, which increases the reserves that the bank holds at the Fed. This action increases the Fed's total liabilities because the reserves of the banks are a liability on the Fed's balance sheet. The Fed's total assets also increase because it now holds more bonds.

Which Among the Following Will Happen If the Fed Buys