ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -The U.S. Treasury and the Federal Reserve are separate entities. The Treasury manages all of the money coming into the government and paid out by it. The Federal Reserve’s primary responsibility is to keep the economy stable by managing the supply of money in circulation.

Detailed explanation-2: -Normally, the interest the Fed earns on its securities greatly exceeds the interest it pays to banks and money funds, and the Fed meets its expenses from the surplus and remits the rest to the Treasury.

Detailed explanation-3: -What Is the Treasury General Account? The Treasury General Account is the general checking account, which the Department of the Treasury uses and from which the U.S. government makes all of its official payments. The Federal Reserve Bank of New York holds the Treasury General Account.

Detailed explanation-4: -When the Federal Reserve sells the Treasury securities in the open market, the exiting level of money supply in the economy declines. This is because the buyers of the Treasury securities pay for the securities by checks and hence, the level of reserves for banks declines.