Suppose the Bank of Canada buys $5 million worth of government securities from BMO,

a commercial bank.

a) Using T-account analysis, show what happens to the balance sheets of the BoC and

BMO immediately.

b) If BMO does not want to hold any excess reserves, it will make more loans. Show the

change for its balance sheet reflecting this lending.

c) Using T-account analysis, show what happens to the balance sheet of the BMO when the

borrower withdraws cash from BMO.

d) What is the net change for the balance sheet of BMO after the withdrawal? Show the T-

account.