13. Suppose that the Bank of Canada sells 100 million pounds sterling from its foreign exchange reserves,

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13. Suppose that the Bank of Canada sells 100 million pounds sterling from its foreign exchange reserves, and that the exchange rate is $1.60 Canadian per pound sterling.

a. Explain what happens to the Canadian money supply.

b. Now suppose that the Bank of Canada does not want the money supply to change. What would it need to do to sterilize its foreign exchange market operation?

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Principles Of Macroeconomics

ISBN: 9780176591977

7th Canadian Edition

Authors: N. Mankiw, Ronald Kneebone, Kenneth McKenzie

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