If the Fed purchases $1 million in securities from the nonbank public, the monetary base will rise by $1 million

Question

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Whether the public holds the proceeds as currency or deposits them as checkable deposits, the monetary base will rise by $1 million. This is because the Fed's purchase of securities from the nonbank public increases the nonbank public's deposits with banks, which increases the banks' reserves held at the Fed, and therefore increases the monetary base.

If the Fed Purchases $1 Million in Securities from the Nonbank