Suppose the Reserve Bank sells $200 million of securities in the open market to Westpac.After the transaction which of the following occurs?
i.Westpac has $200 million more in securities.
ii.The Reserve Bank has $200 million more in securities.
iii.The Reserve Bank decreases Westpac's reserve deposit account at the Reserve Bank by $200 million.

Question

Quizplus · Accepted Answer

When the Reserve Bank sells securities to Westpac, Westpac pays the Reserve Bank $200 million. This payment reduces Westpac's reserves deposit account at the Reserve Bank by $200 million (iii). At the same time, Westpac receives $200 million in securities from the Reserve Bank (i). Therefore, both i and iii occur. The Reserve Bank does not have more securities; it sold securities to Westpac, so its securities holdings decreased, making ii incorrect.

Suppose the Reserve Bank Sells $200 Million of Securities in the Open