2. One of the accounts on the Federal Reserve\'s balance sheet is called \'Treas

Question

2. One of the accounts on the Federal Reserve's balance sheet is called 'Treasury Securities. a. Do Treasury Securities go on the asset side of the Fed's balance sheet or the Liabilities side? ASSe b. Why are Treasury Securities valuable to the Fed? What stream of payments do those securities entitle the Fed to? c. Who pays the Fed that stream of payments? 3. Explain how the Fed can increase or decrease the supply of money using Open-Market Operations 4. Where does the Fed get the money it uses to pay for the Treasury Securities it buys when it engages in Open Market Operations? 5. The balance sheet below shows the initial position of all commercial banks in the country. 15

Explanation / Answer

2. a. Treasury bonds go on the asset's side.

b. The fed buys the treasury bonds in a process of competitive bidding. The fed then uses these treasury bonds to finance government spending. This generates a lot of money for the government.

c. The department of treasury is responsible for transferring the money from the government's clutches to the consumers' hands.

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