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2 years ago

If the Fed sells $2 million of bonds to the First National Bank, what happens to reserves and the monetary base?

Business

1 answer:

Sindrei [870]2 years ago

4 0

Answer:

Reserves fall by $2 million, and the monetary base falls by $2 million.

Explanation:

In the books of First National Bank, the purchase of $2 million of bonds by First National Bank, from the Federal Reserve means there is a reserve with the Federal Reserve represented by security which stands as asset.

In the books of the Federal Reserve, The sales of bonds to First National Bank will create a liability from the reserve assets.

See attached for the T-accounts explain the answer

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2 years ago

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3 years ago

If the Fed sells​ $2 million of bonds to the First National​ Bank, what happens to reserves and the monetary​ base?

If the Fed sells $2 million of bonds to the First National Bank, what happens to reserves and the monetary base?