When the Fed buys U.S. government securities from a member bank, _____

Question

Quizplus · Accepted Answer

When the Federal Reserve buys U.S. government securities from a member bank, the bank receives payment from the Fed, which increases the bank's reserves. This increase in reserves is reflected on the bank's balance sheet as an increase in both assets (due to the increase in reserves) and liabilities (since deposits are a liability for the bank and these might increase as a result of the transaction). This action does not directly affect the discount rate or the federal funds rate, nor does it decrease the bank's assets or liabilities.

When the Fed Buys U