The Bank of Canada purchases $6 million in government bonds from Bondholder X, who has a deposit at Frontenac Bank.

a. As a result of this transaction the balance sheets of both the Bank of Canada and Frontenac Bank will change.

The Bank of Canada's holdings of government bondsrise

Correct

by $6 million on theassets

Correct

side of the Bank of Canada's balance sheet. Meanwhile Frontenac Bank's deposit at the Bank of Canadarises

Correct

by $6 million on theliabilities

Correct

side of Frontenac Bank's balance sheet.

Frontenac Bank's deposit at the Bank of Canadarises

Correct

by $6 million on theassets

Correct

side of Frontenac Bank's balance sheet. Bondholder X's depositrises

Correct

by $6 million on theliabilities

Correct

side of Frontenac Bank's balance sheet.

b. If the reserve ratio is 5%, Frontenac Bank's excess reservesincrease

Correct

by $597000

Numeric Response

Edit Unavailable.597000incorrect.

.

c. The final maximum effect on the money supply is a(n)increase

Correct

of $120

Numeric Response

Edit Unavailable.120correct.

million.