Consider a $2 billion open market purchase of U.S. Treasury securities by the Federal Reserve. The Fed's balance sheet will show:

Question

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When the Fed purchases $2 billion worth of U.S. Treasury securities, its assets will increase by $2 billion in the category of securities. At the same time, the liability category of reserves will also increase by $2 billion since the Fed is creating new money to buy the securities. Therefore, both the asset and liability categories will increase by $2 billion, resulting in a bigger balance sheet.

Consider a $2 Billion Open Market Purchase of U