If the Fed purchases $15 million worth of government bonds from Bank X, initiall

Question

If the Fed purchases $15 million worth of government bonds from Bank X, initially nothing will happen to Bank X's balance sheet. the amount of Bank X's deposits at the Fed will increase by $15 million. the amount of funds deposited at Bank X will decrease by $15 million. the amount of Bank X's deposits at the Fed will decrease by $15 million. the amount of funds deposited at Bank X will increase by $15 million. If the Fed purchases $15 million worth of government bonds from Bank X, initially nothing will happen to Bank X's balance sheet. the amount of Bank X's deposits at the Fed will increase by $15 million. the amount of funds deposited at Bank X will decrease by $15 million. the amount of Bank X's deposits at the Fed will decrease by $15 million. the amount of funds deposited at Bank X will increase by $15 million. nothing will happen to Bank X's balance sheet. the amount of Bank X's deposits at the Fed will increase by $15 million. the amount of funds deposited at Bank X will decrease by $15 million. the amount of Bank X's deposits at the Fed will decrease by $15 million. the amount of funds deposited at Bank X will increase by $15 million. nothing will happen to Bank X's balance sheet.

Explanation / Answer

Explanation: When the Fed buys bonds from a bank, the Fed credits the amount of money to the reserve account of the Bank with Fed. Therefore, the bank's deposits with the Fed increases by the same amount.

The right answer is option 2. The amount of Bank X's deposits at the Fed will increase by $15 million.

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