Assume that the Bank of Canada purchases $50 million of federal government bonds from Lucky Bank....
Assume that the Bank of Canada purchases $50 million of federal
government bonds from Lucky Bank. Bank of Canada bond purchases
from Lucky Bank
a) should lead to the creation of new money
b) should force chartered banks to decrease the stock of money
c) have no impact on the quantity of money.
Homework Answers
Option A is correct
Now the Lucky Bank is having excess reserves because it has sold government securities to the Bank of Canada. this is excess reserves can be used in advancing new loans which means that there will be an additional supply of money in the market.
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Assume that the Bank of Canada purchases $50 million of federal
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