Consider the following situation in the Canadian banking system: •The Bank of Canada purchases $5 million worth of government securities from an investment dealer with a cheque drawn on the Bank of Canada. •The dealer deposits this cheque at Bank XYZ, a commercial bank. •The target reserve ratio for all commercial banks is 20%. •All commercial banks operate with no excess reserves. Suppose the public decides to hold 5% of their deposits in cash – that is, there is now a cash drain of 5%. As a result of the new deposit, the money supply would eventually (a) increase by $16.67 million (b) increase by $20 million

Consider the following situation in the Canadian banking system: •The Bank of Canada purchases $5 million worth of government securities from an investment dealer with a cheque drawn on the Bank of Canada. •The dealer deposits this cheque at Bank XYZ, a commercial bank. •The target reserve ratio for all commercial banks is 20%. •All commercial banks operate with no excess reserves. Suppose the public decides to hold 5% of their deposits in cash – that is, there is now a cash drain of 5%. As a result of the new deposit, the money supply would eventually (a) increase by $16.67 million (b) increase by $20 million

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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