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Exhibit: Balance Sheets for Fed and Banking System

-(Exhibit:Balance Sheets for Fed and Banking System) The table shows entries on the balance sheets for the Federal Reserve and the banking system above. These balance sheet entries are consistent with
A) an open market sale of $1,500 in bonds.
B) an open market purchase of $1,500 in bonds.
C) neither an open market sale nor an open market purchase.
D) either an open market sale or an open market purchase.

Question

Use the following to answer question .
Exhibit: Balance Sheets for Fed and Banking System
  
-(Exhibit:Balance Sheets for Fed and Banking System) The table shows entries on the balance sheets for the Federal Reserve and the banking system above. These balance sheet entries are consistent with
A) an open market sale of $1,500 in bonds. 
B) an open market purchase of $1,500 in bonds. 
C) neither an open market sale nor an open market purchase. 
D) either an open market sale or an open market purchase.

Quizplus · Accepted Answer

An open market sale of $1,500 in bonds would decrease the Fed's holdings of bonds and increase the banking system's holdings of bonds. This would lead to a decrease in the Fed's assets and an increase in the banking system's assets. The table shows that the Fed's assets have decreased by $1,500 and the banking system's assets have increased by $1,500, which is consistent with an open market sale of $1,500 in bonds.

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