Read Applying Economic Concepts 28 -1, which discusses the Bank of Canada's open-market operations and how these influence the amount of currency in circulation in the Canadian economy. Using simplified balance sheets like the ones shown below, suppose that a commercial bank uses \(\$ 100 000\) of excess cash reserves to purchase a government bond from the Bank of Canada.

a. What are the immediate effects on assets and liabilities for the commercial bank? Fill in the left-hand table.

b. What are the changes for the Bank of Canada? Fill in the right-hand table.

c. Explain what has happened to the amount of currency in circulation.

Transcribed Image Text:

Commercial Bank Bank of Canada Assets Liabilities Assets Liabilities Reserves Deposits Bonds Commercial bank Bonds deposits Currency