Assume that the following balance sheet portrays the state of the banking system. The banks currently have no excess reserves. Assets Total reserves Loans Securities Total What is the required reserve ratio? 5% O 10% 25% 40% $5 billion 45 billion 50 billion $100 billion Liabilities and Net Worth Chequable deposits Total $100 billion $100 billion Suppose the Bank of Canada sells $8 million of bonds to a bond dealer, who pays the Bank of Canada by writing a cheque against the funds in her chequing account. What is the initial impact of this transaction? Chequable deposits fall by $8 million, and the banking system's holdings of securities fall by $8 million. The banking system's holdings of securities rise by $8 million, and the banking system's total reserves fall by $8 million. O The banking system's holdings of securities fall by $8 million, and the banking system's total reserves rise by $8 million. Chequable deposits fall by $8 million, and the banking system's total reserves fall by $8 million. As a result of the Bank of Canada's sale of $8 million of securities, chequable deposits in the banking system can potentially by as much as
Assume that the following balance sheet portrays the state of the banking system. The banks currently have no excess reserves. Assets Total reserves Loans Securities Total What is the required reserve ratio? 5% O 10% 25% 40% $5 billion 45 billion 50 billion $100 billion Liabilities and Net Worth Chequable deposits Total $100 billion $100 billion Suppose the Bank of Canada sells $8 million of bonds to a bond dealer, who pays the Bank of Canada by writing a cheque against the funds in her chequing account. What is the initial impact of this transaction? Chequable deposits fall by $8 million, and the banking system's holdings of securities fall by $8 million. The banking system's holdings of securities rise by $8 million, and the banking system's total reserves fall by $8 million. O The banking system's holdings of securities fall by $8 million, and the banking system's total reserves rise by $8 million. Chequable deposits fall by $8 million, and the banking system's total reserves fall by $8 million. As a result of the Bank of Canada's sale of $8 million of securities, chequable deposits in the banking system can potentially by as much as
Macroeconomics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN:9781305506756
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Chapter13: Money And The Banking System
Section: Chapter Questions
Problem 18CQ
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Transcribed Image Text:Assume that the following balance sheet portrays the state of the banking system. The banks currently have no
excess reserves.
Assets
Total reserves
Loans
Securities
Total
What is the required reserve ratio?
5%
O 10%
25%
40%
$5 billion
45 billion
50 billion
$100 billion
Liabilities and Net Worth
Chequable deposits
Total
$100 billion
$100 billion
Suppose the Bank of Canada sells $8 million of bonds to a bond dealer, who pays the Bank of Canada by writing a
cheque against the funds in her chequing account. What is the initial impact of this transaction?
Chequable deposits fall by $8 million, and the banking system's holdings of securities fall by $8 million.
The banking system's holdings of securities rise by $8 million, and the banking system's total reserves fall by
$8 million.
O The banking system's holdings of securities fall by $8 million, and the banking system's total reserves rise by
$8 million.
Chequable deposits fall by $8 million, and the banking system's total reserves fall by $8 million.
As a result of the Bank of Canada's sale of $8 million of securities, chequable deposits in the banking system can
potentially
by as much as
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