1. An Example The US government collects $10M in taxes

2. Public Taxpayers Government  Government’s checking account + $10M  Public’s checking account - $10M Net change = 0 Tax Payments $10M  Assets =  Liabilities +  Net Worth 0 0 Bank’s Balance Sheet Central Bank

3. An Example The government borrows $10M from the public

4. Public Lenders Savers Government Payment for Securities Government Securities 0 0  Assets =  Liabilities +  Net Worth Bank’s Balance Sheet Central Bank  Government’s checking account + $10M  Public’s checking account - $10M Net change = 0

5. An Example The government spends the funds

6. Public Highway Contractor Government Goods & Services Payment 0 0  Assets =  Liabilities +  Net Worth Bank’s Balance Sheet Central Bank  Government’s checking account - $10M  Public’s checking account + $10M Net change = 0

7. Example: Central Bank Buys $10M in Treasury Bonds

8. Public  Public’s checking account +$10M Net change = $10M Government Securities $10M  Assets =  Liabilities +  Net Worth Reserves at Fed + $10M 0 Bank’s Balance Sheet Central Bank Check $ 10M