12. Assume there is a reserve requirement of 20 percent. Also assume that banks do not hold...

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12. Assume there is a reserve requirement of 20 percent. Also assume that banks do not hold excess reserves and there is no cash held by the public. The Bank of Canada decides that it wants to expand the money supply by $40 million.

a. If the Bank of Canada is using open-market operations, will it buy or sell bonds?

b. What quantity of bonds does the Bank of Canada need to buy or sell to accomplish the goal? Explain your reasoning.

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