Table 29-1 Effects of an open-market transaction on the balance sheets of banks and the fed (in millions of dollars) In Table 29-1, the Federal Reserve System has
A) sold $10 million in government securities to banks, taking payment in cash.
B) sold $10 million in government securities to banks, taking payment from the bank's reserves.
C) purchased $10 million in government securities from banks, paying for them with increases in banks' reserves.
D) purchased $10 million in government securities from banks, paying for them with new Federal Reserve notes.

Question

Table 29-1 Effects of an open-market transaction on the balance sheets of banks and the fed (in millions of dollars)  In Table 29-1, the Federal Reserve System has
A) sold $10 million in government securities to banks, taking payment in cash. 
B) sold $10 million in government securities to banks, taking payment from the bank's reserves. 
C) purchased $10 million in government securities from banks, paying for them with increases in banks' reserves. 
D) purchased $10 million in government securities from banks, paying for them with new Federal Reserve notes.

Quizplus · Accepted Answer

The table shows that the Fed purchased $10 million in government securities from banks, paying for them with increases in banks' reserves. This is evidenced by the increase in reserves on the banks' balance sheets and the corresponding decrease in securities on the Fed's balance sheet.

Table 29-1 Effects of an Open-Market Transaction on the Balance