When the Fed purchases artwork to decorate the conference room at the Federal Reserve Bank of Kansas City

Question

Quizplus · Accepted Answer

The purchase of artwork by the Fed would increase the assets of the Fed (in this case, artwork) and increase the liabilities of the Fed (reserves held by the bank where the artwork was purchased from). Since the monetary base is equal to the sum of currency in circulation and reserves, an increase in reserves would result in an increase in the monetary base. Therefore, the correct answer is D.

When the Fed Purchases Artwork to Decorate the Conference Room