When the Fed sells one million dollars in securities to a commercial bank,
A) there is no change in the total assets of the Fed or the commercial bank.
B) the commercial bankʹs total assets decrease by one million dollars.
C) the Fedʹs total assets increase by one million dollars.
D) None of the above answers is correct.

Question

Quizplus · Accepted Answer

When the Fed sells securities, it decreases its holdings of securities and the commercial bank's reserves decrease by the same amount, leading to a decrease in the commercial bank's total assets. Thus, none of the provided options correctly describe the transaction's effect.

When the Fed Sells One Million Dollars in Securities to a Commercial