Suppose the Reserve Bank buys $200 million of securities in the open market from Bank West. After the transaction which of the following occurs?
i. Bank West has $200 million less in securities.
ii. The Reserve Bank has $200 million more in securities.
iii. The Reserve Bank decreases Bank West's reserve deposit account at the Reserve Bank.

Question

Quizplus · Accepted Answer

When the Reserve Bank buys securities from Bank West, Bank West ends up with $200 million less in securities (i), and the Reserve Bank has $200 million more in securities (ii). The transaction does not decrease Bank West's reserve deposit account at the Reserve Bank; instead, it increases it, making option iii incorrect.

Suppose the Reserve Bank Buys $200 Million of Securities in the Open