Claire sells a US Treasury security to the Federal Reserve on the secondary market. She receives a check as payment and then cashes the check at her bank, keeping the cash. Which of the following best describes the result?

Question

Quizplus · Accepted Answer

When Claire sells the Treasury security to the Fed and cashes the check, the monetary base increases because the cash she holds is part of the monetary base. However, bank reserves do not change because the cash is withdrawn from the bank's reserves.

Claire Sells a US Treasury Security to the Federal Reserve