Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

4. Money supply basics The following is a dialogue between two economics students who are studying for a test. Assuming that Beth correctly explains the

image text in transcribedimage text in transcribed
4. Money supply basics The following is a dialogue between two economics students who are studying for a test. Assuming that Beth correctly explains the money supply, fill in the blanks. ANDREW: I was late to the lecture. Did the professor say the narrow definition of money supply is just equal to the amount of currency in circulation plus traveller's cheques? BETH: No! The money supply is actually equal to the sum of currency, traveller's cheques, and ANDREW: And what are those again? BETH: Those are the ANDREW: Can the Bank of Canada control that? BETH: Well, they can indirectly control it by adjusting the , because that affects the fraction of deposits that banks . The higher it is, the total money the banks can lend out. ANDREW: And how does that change the money supply? BETH: When you deposit money in your account, your bank can lend it to me. Afterward, counted as part of the money supply. ANDREW: OK, I think I understand the Bank of Canada's role now. BETH: Just remember that the Bank of Canada can't completely control the money supply. Banks can choose to hold reserves thanplia Homework: Money and the Banking System BETH: No! The money supply is actually equal to the sum of currency, traveller's cheques, and ANDREW: And what are those again? BETH: Those are the ANDREW: Can the Bank of Canada control that? BETH: Well, they can indirectly control it by adjusting the ,because that affects the fraction of deposits that banks . The higher it is, the total money the banks can lend out. ANDREW: And how does that change the money supply? BETH: When you deposit money in your account, your bank can lend it to me. Afterward, counted as part of the money supply. ANDREW: OK, I think I understand the Bank of Canada's role now. BETH: Just remember that the Bank of Canada can't completely control the money supply. Banks can choose to hold reserves than the Bank of Canada specifies with the reserve requirement. Additionally, preferences for holding money affect the total amount of deposits

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

International Marketing

Authors: Philip R Cateora

13th Edition

0073080063, 9780073080062

More Books

Students also viewed these Economics questions