1.Money and inflation: suppose that the Bank of Canada conducts an openmarket purchase of $5000 from a commercial bank. Assuming all banks'desired reserve ratio is 0.10, or 10 percent, and currency drain ratio is 0.

Answer the questions below:

a.Draw the balance sheets for the commercial bank and the Bank ofCanada respectively, to show the effects of open market operation.

b.By how much monetary base will increase? By how much money supplywill increase?

c.If banks' desired reserve ratio increases to 0.4, how does this affect thesize of money multiplier?

d.If currency drain ratio increases to 0.1, or 10%, how does it affect the size