The Fed buys $1 million in bonds from a bond dealer. The bond dealer's bank experiences
A. an increase in assets of $1 million as its reserves increase and a decrease in liabilities as its transactions deposits fall.
B. a decrease in assets of $1 million as the checking account of the bond dealer increased, and a decrease in liabilities as the bank's deposits with the Fed increased by $1 million.
C. an increase in assets of $1 million as its reserves increase and an increase in liabilities of $1 million as the deposits in the bond dealer's transactions account increases by $1 million.
D. no change in assets or liabilities. Assets both increased and decreased by the amount of the check.
Answer: C
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