Question

Using T-accounts, show what happens to checkable deposits in the banking system when the Fed sells $2 million of bonds to the First National Bank.

Short answer

The checkable deposits in the banking system when the Fed sells $2 million of bonds to the First National Bank is grows by 2 million dollars.

Step-by-step solution

Concept introduction

A T-account is a casual word for a group of monetary records that utilizesdouble-entry bookkeeping. The word defines the appearance of the bookkeeping access. First, a big note T is sketched on a page

Explanation

$\begin{array}{|llll|}\hline \text{Checkable Deposits A/c}& & & \\ \text{Debit}& & & \text{Credit}\\ \text{Particulars}& \text{Amount}& \text{Particulars}& \text{Amount}\\ \text{Balance}& 2000000& \text{Bank}& 2000000\\ & 2000000& & 2000000\\ \hline\end{array}$

The balance of the checkable deposits grows by 2 million dollars.

Final answer

The checkable deposits in the banking system when the Fed sells $2 million of bonds to the First National Bank is grows by 2 million dollars.