The Fed purchases German bonds from commercial banks. Which of the following best describes the impact on the Fed's and the Banking System's balance sheets resulting from this transaction?
A. The Fed's assets and liabilities do not change, only the compositions of the assets change. For the banking system, assets and liabilities increase.
B. The Fed's assets and liabilities increase, the banking systems assets and liabilities decrease.
C. The Fed's assets increase and its liabilities increase, for the banking system, the value of assets and liabilities do not change, only the composition of assets changes.
D. The Fed's assets increase and its liabilities decrease, for the banking system, the value of assets and liabilities do not change, only the composition of assets changes.
Answer: C
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