If the Fed purchases $100,000 in government bonds from a bank, then the

Question

Quizplus · Accepted Answer

When the Fed purchases government bonds from a bank, it pays for them by crediting the bank's reserve account with the Fed. This increases the bank's reserves by the amount of the purchase, in this case $100,000. Therefore, the correct answer is D. The other options are incorrect because the bank's liabilities (A) and assets (C) do not change as a result of the sale, and its reserves do not fall (B).

If the Fed Purchases $100,000 in Government Bonds from a Bank