Macroeconomics 12th Edition by Rudiger Dornbusch ,Stanley Fischer,Richard Startz

Exercise 5

When the Fed buys or sells gold or foreign exchange, it automatically offsets, or sterilizes, the impact of these operations on the monetary base by compensating open market operations. What it does is to buy gold and at the same time sell bonds from its portfolio. Show the effects on the Fed balance sheet of a purchase of gold and a corresponding sterilization through an open market sale.