Problem: Assume that this balance sheet portrays the state of the banking system. The banks have no excess reserves.
Assets Liabilities
Total reserves Transactions accounts
$40 billion $160 billion
Loans
$50 billion
Securities
$70 billion
Total Total
$160 billion $160 billion
1. The Federal Reserve buys $10 billion of bonds from a bond dealer. What is the initial impact of the transaction?
A. The banking system's holdings of securities rise by $10 billion and the banking system's total reserves fall by $10 billion.
B. Transactions accounts rise by $10 billion and the banking system's total reserves rise by $10 bill
C. The banking system's holdings of securities fall by $10 billion and the banking system's total reserves rise by $10 billion.
D. Transactions accounts rise by $10 billion and the banking system's holdings of securities rise by $10 billion.