11. Suppose there is a reserve requirement for private banks set at 10 percent of deposits. Also assume that banks do not hold any excess reserves.

a. If the Bank of Canada sells $1 million of government bonds, what is the effect on the economy's reserves and money supply?

b. Now suppose the Bank of Canada lowers the reserve requirement to 5 percent, but banks choose to hold another 5 percent of deposits as excess reserves. Why might banks do so? What is the overall change in tire money multiplier and the money supply as a result of these actions?