if the fed sells $2 million of bonds to the First National bank, what happens to reserves and the monetary base

First National bank

ASSETS

Decrease in RESERVE $2 million

Increase in SECURITIES $2 million

Federal Reserve

ASSETS:Decrease in RESERVE $2 million

LIABILITIES:Decrease in SECURITIES $2 million

Decrease in Reserve by $2 million while the Monetary Base Decrease by $2 million

Explanation:

Based on the information given if federal reserve sell the amount of $2 million of bonds to the First National bank, what will happen is that:

1. In First National bank:

Assets

RESERVE will decrease by the amount of $2 million while the SECURITIES will increase by the same amount of $2 million.

2. In Federal reserve :

Assets and Liabilities

Both the RESERVE AND SECURITIES will decrease by the amount of $2 million.

3. The Reserve will decrease by the amount of $2 million while Monetary Base will as well decrease by the same amount of $2 million.

In Summary

First National bank

ASSETS

Decrease in RESERVE $2 million

Increase in SECURITIES $2 million

Federal Reserve

ASSETS:Decrease in RESERVE $2 million

LIABILITIES:Decrease in SECURITIES $2 million

Decrease in Reserve by $2 million while the Monetary Base Decrease by $2 million

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