Question

Question 44 (1 point) Assume that, in the process of an open market operation, the Bank of Canada buys $100 billion worth of government bonds of chartered banks. Assuming the desired reserve ratio is 20%, in this process, a) Bank of Canada's assets increase by $100b. b) Bank of Canada's assets decrease by $100b. c) chartered banks' deposits at the Bank of Canada decrease by $100b. d) chartered banks' deposits at the Bank of Canada increase by $100b. e) chartered banks' securities decrease by $100b. f) chartered banks' securities increase by $100b. g) chartered banks' reserves decrease by $100b. h) chartered banks' reserves increase by $100b. i) money supply in the economy increases by $500b, eventually. j) money supply in the economy decreases by $500b, eventually. Oa, d, e, h, and i Oa, d, f, g, and i a, c, e, g, andj O ac, e, g, and i

Answer 1

The answer is "A, D,E, H and I"

A - Bank of canada asset will increase by 100 Billion $ as it is recorded in asset side of BOC balance sheet.

D - Chartered banks deposits at the bank of canada increases by 100 Billion $ as BOC paid money to bank in turn of bonds.

E - Chartered bank securities decreases by 100 Billion $ as BOC purchased these securities.

H - Chartered Bank reserves increases by 100 Billion $ as central bank provided with money it paid on bonds.

I - Reseve ratio = 20 % , multiplier = 1 / 20 % = 5.

therefore increase in money supply = Excess reserves * multiplier = 100 * 5 = 500