Suppose that the currency in circulation is 25m, and deposits are 100m. Suppose also that reserves are 15m.Bank of Canada moves $150m dollars worth of government deposits out of its books and into commercial banks.

a. Show the relevant accounting entries and indicate the size of the effect on the money supply.

b. Assume that the monetary base is $20m. Calculate the money supply. Calculate the effect on the money supply of a decrease in currency in circulation by $2m.

c. What would the bank doto offset the effects of the decrease in the currency in circulation by $2?