Answered step by step
Verified Expert Solution
Question
1 Approved Answer
a. A decline in the bank rate prompts chartered banks to borrow an additional $3 billion from the Bank of Canada. Show the new balance-sheet
a. A decline in the bank rate prompts chartered banks to borrow an additional $3 billion from the Bank of Canada. Show the new balance-sheet figures in column 1 of each table. b. The Bank of Canada sells $5 billion in securities to the public, who pay for the bonds with cheques. Show the new balance sheet figures in column 2 of each table. c. The Bank of Canada buys $4 billion of securities from chartered banks. Show the new balance sheet numbers in column 3 of each table. Instructions: All answers below are to be entered as whole numbers. Consolidated Balance Sheet: All chartered banks (billions of dollars) Assets: Cash reserves Securities Loans Liabilities: Demand deposits Advances from Bank of Canada (1) (2) (0) $34 $ $ $ 58 62 $150 4 Balance Sheet: Bank of Canada (billions of dollars) (1) (2) (3) Assetsi Securities $60 $ $ $ Advances to chartered banks 4 Liabilities Reserves of chartered banks $34 $ Government of Canada deposits Notes in circulation 3 27 d. Now review all of the above 3 transactions, asking yourself these three questions: (1) What change, if any, took place in the money supply as a direct and immediate result of each transaction? (2) What increase or decrease in chartered banks' cash reserves took place in each transaction? (3) Assuming a desired reserve ratio of 20 percent, what change in the money-creating potential of the chartered banking system occurred as a result of each transaction? Transaction a: 1. The money supply (Click to select) 2. Reserves (Click to select) from $34 to $[ 3. Money-creating potential (Click to select) by $ billion billion. Transaction b: 1. The money supply (Click to select)* by $ billion. 2. Reserves (Click to select) from $34 to $[ 3. Money-creating potential (Click to select) by $ Transaction c: 1. The money supply (Click to select) billion billion. 2. Reserves (Click to select)from $34 to $[ billion. 3. Money-creating potential (Click to select) by $ billion. D
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started