Suppose the Fed purchases $1,000 of government securities from the general public who then deposit the proceeds into their checking accounts in commercial banks. Which pair of the T-accounts below shows this transaction?

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In this transaction, the Fed is buying government securities from the general public, so the Fed's securities account increases by $1,000, while the public's checking account increases by $1,000. When the public deposits the proceeds into their checking accounts in commercial banks, the commercial bank's reserves increase by $1,000, and the public's checking account increases. This can be seen in the T-accounts in Choice B, where the Fed's Securities account and the Public's Checking account both increase by $1,000, while the assets of Bank A increase by $1,000 (and so does its reserves). The assets of Bank A increase because it receives a deposit of $1,000, and its liabilities also increase because it owes the public money.

Suppose the Fed Purchases $1,000 of Government Securities from the General