The Fed buys $100 million of government securities from Bank A. What is the effect on the Federal Reserve's balance sheet?

Question

Quizplus · Accepted Answer

When the Fed buys $100 million of government securities from Bank A, the Fed's balance sheet increases by $100 million worth of securities and $100 million in reserves. The securities increase because the Fed now holds them, and the reserves increase because Bank A's account with the Fed now has an additional $100 million in deposits. Therefore, Choice D is the correct answer.

The Fed Buys $100 Million of Government Securities from Bank