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. • There is no cash drain. Suppose the public decides to hold 30% of their deposits in cash — that is, there is now a cash drain of 30%. As a result of the new deposit, the money supply would eventually decrease by $12.50 million. increase by $10 million. decrease by $15 million. increase by $12.50 million. not change.
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. • There is no cash drain. Suppose the public decides to hold 30% of their deposits in cash — that is, there is now a cash drain of 30%. As a result of the new deposit, the money supply would eventually decrease by $12.50 million. increase by $10 million. decrease by $15 million. increase by $12.50 million. not change.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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45. 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 |
| • | There is no cash drain. |
Suppose the public decides to hold 30% of their deposits in cash — that is, there is now a cash drain of 30%. As a result of the new deposit, the money supply would eventually
|
decrease by $12.50 million.
|
||
|
increase by $10 million.
|
||
|
decrease by $15 million.
|
||
|
increase by $12.50 million.
|
||
|
not change.
|
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