2. The Bank of Canada and the money supply Suppose the money supply (as measured by chequable deposits) is currently $300 billion. The desired reserve ratio is 20%. Banks hold $60 billion in reserves, so there are no excess reserves. The Bank of Canada wants to decrease the money supply by $17.5 billion, to $282.5 billion. It could do this through open-market operations or by changing the desired reserve ratio. Assume for this question that you can use the simple money multiplier. If the Bank of Canada wants to decrease the money supply using open-market operations, it should government bonds. If the Bank of Canada wants to decrease the money supply by adjusting the desired reserve ratio, it should billion worth of Canadian the desired reserve ratio.
2. The Bank of Canada and the money supply Suppose the money supply (as measured by chequable deposits) is currently $300 billion. The desired reserve ratio is 20%. Banks hold $60 billion in reserves, so there are no excess reserves. The Bank of Canada wants to decrease the money supply by $17.5 billion, to $282.5 billion. It could do this through open-market operations or by changing the desired reserve ratio. Assume for this question that you can use the simple money multiplier. If the Bank of Canada wants to decrease the money supply using open-market operations, it should government bonds. If the Bank of Canada wants to decrease the money supply by adjusting the desired reserve ratio, it should billion worth of Canadian the desired reserve ratio.
Chapter1: Making Economics Decisions
Section: Chapter Questions
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Transcribed Image Text:2. The Bank of Canada and the money supply
Suppose the money supply (as measured by chequable deposits) is currently $300 billion. The desired reserve ratio is 20%. Banks hold $60 billion in
reserves, so there are no excess reserves.
The Bank of Canada wants to decrease the money supply by $17.5 billion, to $282.5 billion. It could do this through open-market operations or by
changing the desired reserve ratio. Assume for this question that you can use the simple money multiplier.
If the Bank of Canada wants to decrease the money supply using open-market operations, it should
government bonds.
If the Bank of Canada wants to decrease the money supply by adjusting the desired reserve ratio, it should
billion worth of Canadian
the desired reserve ratio.
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