If the Federal Reserve purchases a $2,000 bond from a bond dealer who deposits the check in a bank,what changes will occur on that bank's balance sheet?

Question

Quizplus · Accepted Answer

When the Federal Reserve purchases a bond and pays the bond dealer with a check, the check is deposited in a bank. This increases the bank's reserves by $2,000 since the check is drawn on the Federal Reserve. The deposit also increases the bank's demand deposits (liabilities) by $2,000, which in turn increases total assets by $2,000. Therefore, all four items on the bank's balance sheet - reserves, demand deposits, total assets, and total liabilities - increase by $2,000. Choice A is the correct answer.

If the Federal Reserve Purchases a $2,000 Bond from a Bond