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

Question

Quizplus · Accepted Answer

When the Fed buys $100 million of government securities from Bank A, the securities on the Fed's balance sheet increase by $100 million, and Bank A's reserves increase by $100 million. This is because the Fed pays for the securities by crediting Bank A's reserve account with the Fed.

The Fed Buys $100 Million of Government Securities from Bank