When the Federal Reserve purchases a U.S. Treasury bond for $1 million by writing a check, when the check returns, the Fed's balance sheet will show:

Question

Quizplus · Accepted Answer

When the Federal Reserve purchases a U.S. Treasury bond for $1 million, it increases its assets (the bond) by $1 million. When it writes a check for this purchase, the banking system's reserves increase by $1 million when the check is deposited, which is reflected as an increase in the Fed's liabilities. Thus, both assets and liabilities increase by $1 million.

When the Federal Reserve Purchases a U