1. (a) Explain the functions of the Bank of Canada.

(b) Suppose at 8am on the first day of a newly established country there is $100 printed and issued by the central bank, and all the money is held by the public because there is no commercial bank. Assume the first commercial bank opens its door at 9am that day and everyone deposits all the money with this bank right away. Use a T-account to show the impacts of these deposits on the bank's assets and liabilities. Explain why it is not feasible to have 100%-reserve banking.

(c) Suppose more commercial banks open for business and every bank adopts fractional-reserve banking with identical reserve ratio at 10% and banks are always loaned up. Start with the first commercial bank, explain how the money expansion process takes place and derive the money multiplier.

(d) Evaluate the statement: "The central bank would never have full control of a country's money supply throughout a business cycle."

(e) Define leverage ratio of a bank. Use a numerical example to explain why leverage ratio and capital requirement are crucial for commercial banks to stay solvent.