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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
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 $2 billion from the Bank of Canada. Show the new balance sheet figures in column 1 of each table. b. The Bank of Canada sells $4 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 $3 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) (1) (2) (3) $ $ $ $ Assets: Cash reserves Securities Loans $34 58 62 Liabilities: Demand deposits Advances from Bank of Canada $150 $ 4 Balance Sheet: Bank of Canada (billions of dollars) (1) (2) (3) Assets: Securities Advances to chartered banks $ $ $ $ $60 4 $ $ $ Liabilities: Reserves of chartered banks Government of Canada deposits Notes in circulation $34 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 sele v 2. Reserves (Click to sele from $34 to $ 3. Money-creating potential (Click to sele by $ billion. billion. Transaction b: 1. The money supply (Click to sele by $ billion 2. Reserves (Click to sele from $34 to $ $ billion. 3. Money-creating potential (Click to sele by $[ billion. Transaction c: 1. The money supply (Click to sele v 2. Reserves (Click to sele from $34 to $ 3. Money-creating potential (Click to sele by $ billion. billion
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