[6 marks] The chartered banks want to hold 5% of deposits as reserves. There are no leakages from the monetary system and the only type of bank account in the economy is a demand deposit with a chartered bank.

The Bank of Canada purchases $5,000,000 worth Treasury Bills on the bond market as part of an open market operation. Indicate the changesin the following balance sheets which result from this open market operation (A) [2 marks] after cheques have cleared but before the chartered banks have had an opportunity to adjust their loans to maximize profits and (B) [2 marks] after the chartered banks have fully adjusted to maximize their profits. Explicitly note all changes in assets and liabilities with a number and a description, for example: x3 = +$5 million in T-Bills.

Table for Part A. After cheques have cleared but before the chartered banks have had an opportunity to adjust their loans to maximize profits:

Bank of Canada			Chartered Banks			Public
Assets	Liabilities		Assets	Liabilities		Assets	Liabilities
a1	a2		a3	a4		a5
						a6

a1 = ? ; a2 = ?; a3 = ? etc.

Table for Part B. After the chartered banks have fully adjusted to maximize their profits:

Bank of Canada			Chartered Banks			Public
Assets	Liabilities		Assets	Liabilities		Assets	Liabilities
b1	b2		b3	b4		b9
						b10
			b5	b6
						b11	b12
			TOTALS:			TOTALS:
			b7	b8		b13	b14

b1 = ?; b2 = ?; b3 = ? etc.

Part C. [2 marks] Calculate the change in money supply resulting from this open market operation.