Scenario: The following table shows the initial balance sheets of Bank A and the Fed. Suppose that the Fed then buys $10 million in bonds from Bank A.

-Refer to the scenario above.After this transaction,the Fed's reserves ________ and Treasury bonds ________.
A) increase by $10 million; increase by $10 million
B) increase by $10 million; decrease by $10 million
C) decrease by $10 million; decrease by $10 million
D) decrease by $10 million; increase by $10 million

Question

Scenario: The following table shows the initial balance sheets of Bank A and the Fed. Suppose that the Fed then buys $10 million in bonds from Bank A.
 
-Refer to the scenario above.After this transaction,the Fed's reserves ________ and Treasury bonds ________.
A) increase by $10 million; increase by $10 million 
B) increase by $10 million; decrease by $10 million 
C) decrease by $10 million; decrease by $10 million 
D) decrease by $10 million; increase by $10 million

Quizplus · Accepted Answer

When the Fed buys Treasury bonds, it increases its reserves and the Treasury's deposits at the Fed.

Scenario: the Following Table Shows the Initial Balance Sheets of Bank