In the table below you will find simplified consolidated balance sheets for the chartered banking system and the Bank of Canada. Use columns 1-3 to indicate how the balance sheets would read after each of transactions in parts (a) to (c) is completed. Do not cumulate your answers; that is, analyze each transaction separately, starting in each case from the numbers provided. All accounts are in billions of dollars. a. A decline in the bank rate prompts chartered banks to borrow an additional $1 billion from the Bank of Canada. Show the new balance-sheet figures in column 1 of each table. b. The Bank of Canada sells $3 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 $2 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) (3) Assets: Cash reserves Securities Loans $33 60 60 Liabilities: Demand deposits Advances from Bank of Canada $150 3 Balance Sheet: Bank of Canada (billions of dollars) (1) | (2) Assets: Securities Advances to chartered banks $60 $33 Liabilities: Reserves of chartered banks Government of Canada deposits Notes in circulation 3 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) A from $33 to $ 3. Money-creating potential ( (Click to select)) by $ Options: Decrease / Increase / Do not Change billion. billion. Transaction b: 1. The money supply ( (Click to select)) by $ 2. Reserves ( (Click to select) A from $33 to $ 3. Money-creating potential (Click to select) billion. billion. by $ [ billion. Transaction c: 1. The money supply ( (Click to select)). 2. Reserves (Click to select)) from $33 to $D 3. Money-creating potential (Click to select) b illion. by $ [ billion. In the table below you will find simplified consolidated balance sheets for the chartered banking system and the Bank of Canada. Use columns 1-3 to indicate how the balance sheets would read after each of transactions in parts (a) to (c) is completed. Do not cumulate your answers; that is, analyze each transaction separately, starting in each case from the numbers provided. All accounts are in billions of dollars. a. A decline in the bank rate prompts chartered banks to borrow an additional $1 billion from the Bank of Canada. Show the new balance-sheet figures in column 1 of each table. b. The Bank of Canada sells $3 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 $2 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) (3) Assets: Cash reserves Securities Loans $33 60 60 Liabilities: Demand deposits Advances from Bank of Canada $150 3 Balance Sheet: Bank of Canada (billions of dollars) (1) | (2) Assets: Securities Advances to chartered banks $60 $33 Liabilities: Reserves of chartered banks Government of Canada deposits Notes in circulation 3 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) A from $33 to $ 3. Money-creating potential ( (Click to select)) by $ Options: Decrease / Increase / Do not Change billion. billion. Transaction b: 1. The money supply ( (Click to select)) by $ 2. Reserves ( (Click to select) A from $33 to $ 3. Money-creating potential (Click to select) billion. billion. by $ [ billion. Transaction c: 1. The money supply ( (Click to select)). 2. Reserves (Click to select)) from $33 to $D 3. Money-creating potential (Click to select) b illion. by $ [ billion
