If the Fed sells $1 million of government bonds to a bank, it has the same effect on deposits and reserves as if the Fed sold $1 million of government bonds to the general public.

Question

Quizplus · Accepted Answer

When the Fed sells bonds to a bank, it directly reduces the bank's reserves, whereas selling to the public reduces reserves indirectly as the public withdraws deposits to pay for the bonds.

If the Fed Sells $1 Million of Government Bonds to a Bank