The chartered banks want to hold 5% of deposits as reserves. There are no leakages from the monetary system and the only type of bank account in the economy is a demand deposit with a chartered bank.

The Bank of Canada purchases $5,000,000 worth Treasury Bills on the bond market as part of an open market operation. Indicate the changes in the following balance sheets which result from this open market operation (A) [2 marks] after cheques have cleared but before the chartered banks have had an opportunity to adjust their loans to maximize profits and (B) [2 marks] after the chartered banks have fully adjusted to maximize their profits. Explicitly note all changes in assets and liabilities with a number and a description, for example: x3 = +$5 million in T-Bills.

Table for Part A. After cheques have cleared but before the chartered banks have had an opportunity to adjust their loans to maximize profits:

Bank of Canada			Chartered Banks			Public
Assets	Liabilities		Assets	Liabilities		Assets	Liabilities
a1	a2		a3	a4		a5
						a6

a1 = ? ; a2 = ?; a3 = ? etc.

Table for Part B. After the chartered banks have fully adjusted to maximize their profits:

Bank of Canada			Chartered Banks			Public
Assets	Liabilities		Assets	Liabilities		Assets	Liabilities
b1	b2		b3	b4		b9
						b10
			b5	b6
						b11	b12
			TOTALS:			TOTALS:
			b7	b8		b13	b14

b1 = ?; b2 = ?; b3 = ? etc.

Part C.  Calculate the change in money supply resulting from this open market operation.