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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 $6 billion from the Bank of Canada. Show the new balance-sheet figures in column 1 of each table b. The Bank of Canada sells $8 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 $7 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 $33 Securities 60 Loans 60 Liabilities: Demand deposits $150 Advances from Bank of Canada Balance She et: Bank of Canada (billions of dollars) (1) (2) (3) Assets Securities $60 Advances to chartered banks Liabilities $33 Reserves of chartered banks Government of Canada deposits Notes in circulation 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 $33 to $ 3. Money-creating potential(Click to select) billion. billion by $ Transaction b: billion 1. The money supply (Click to select)by $ 2. Reserves(Click to select) from $33 to $ by $ | billion billion 3. Money-creating potential (Click to select) Transaction c 1. The money supply (Click to select)) 2. Reserves( (Click to select) from $33 to $ 3. Money-creating potential(Click to select) billion billion by $
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