1. In Canada in 2019 the monetary base was $100 B. Assume that people held 20% of their money in the form of currency (and thus 80% as bank deposits) and that banks held 20% of their deposits in reserve.

(a) What are the reserve-deposit ratio, the currency-deposit ratio, the money multiplier, and the money supply?

(b) Due to the pandemic, in 2020 people did less physical transactions. Assume that in 2020, Canadians held only 10% of their money in the form of currency. If the central bank did nothing, what is the new money supply?

(c) In the face of the pandemic, the central bank wants to conduct an open-market operation to keep the money supply at its original level. Calculate, in dollars, how much the central bank needs to transact.

(d) Would inflation in the long-run been dierent (higher, lower?) hadn't the Central Bank conducted the policy described in part (c))? Briefly explain your reasoning.