Question

Suppose that the Federal Reserve purchases $5000 worth of bonds from this bank. What will be the change in dollar value in demand deposits (checking accounts) immediately after the purchase

Answer 1

Answer: $0

Explanation:

Demand deposits are deposits made by the public into a bank and as such are considered liabilities to the bank.

If the Federal Reserve was to purchase $5,000 worth of bonds from this bank (does not matter which bank), the demand deposits would not be affected because the public will still be owed the same amount of money that they put into the bank and the Fed buying bonds will not change that.