Suppose the Fed buys $50 million of government securities from the Bank of Ameri

Question

Suppose the Fed buys $50 million of government securities from the Bank of America. The Fed's total assets________and its total liabilities_______. increase by $50 million; do not change increase by $50 million; increase by $50 million do not change; do not change decrease by $50 million; increase by $50 million The Bank of America's total assets_______and its total liabilities________. decrease by $50 million; increase by $50 million decrease by $50 million; do not change increase by $50 million; decrease by $50 million do not change; do not change

Explanation / Answer

2. D. do not change; do not change

When Fed buys government securities then, Bank of America's total assets increases by $ 50 million in the form of reserves but at the same time reduces the government securities by $ 50 million. So, net effect is no change in the balance sheet of Bank of America.

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