Table 29-1Effects of an open-market transaction on the balance sheets of banks and the fed (in millions of dollars)
Banks
?
Federal Reserve System
?
Assets
Liab.
Assets
Liab.
Reserves +$10
?
U.S. Gov’t
Bank Reserves
U.S. Gov’t
?
Sec. +$10
+$10
Securities?$10
?
?
?
?
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.
Answer: C
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