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True, False, or Uncertain: Suppose the Bank of Canada (BOC) buys $10B worth of bonds from...

True, False, or Uncertain: Suppose the Bank of Canada (BOC) buys $10B worth of bonds from the Canadian banking system that operates with a desired reserve ratio of 5%. Immediately after the transaction, the balance sheet of the BOC expands by $10B, while balance sheet of the banking system is the same size, but in the long run, the balance sheet of both the BOC and the banking system expand by $200B.

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Answer #1

TRUE.

Immediate effect is an increase in balance sheet (Deposit and reserves) by $10B.

In long run, total increase = $10B / Reserve ratio = $10B / 0.05 = $200B

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