Which of the following will occur if the Fed buys $10 million of securities from the University National Bank?
A) The Fed will pay by increasing the University National Bank's deposit account with the Fed by $10 million.
B) The University National Bank has $10 million more in securities.
C) The Fed will pay by decreasing the University National Bank's deposit account with the Fed by $10 million.
D) The University National Bank has $10 million less in excess reserves.

Question

Quizplus · Accepted Answer

When the Fed buys securities from a bank, it pays for these securities by increasing the bank's deposit account with the Fed by the amount of the purchase, in this case, $10 million. This action directly injects liquidity into the banking system, increasing the bank's reserves.

Which of the Following Will Occur If the Fed Buys