Question

14. a. If the Bank of Canada wanted to decrease the money supply, the Bank would buys bonds from the Chartered Banks. (Primary dealers) b. decreases the fixed operating band for overnight lending. decreases the bank rate. d. sells government securities to the Chartered Banks. (Primary dealers) provides more loans to the Chartered Banks through the Standing Liquidity Facility. c. e. 15. The Bank of Canada purchases $5 million worth of government securities (government bonds) from the Chartered Banks. The desired reserve ratio is 20 percent. Assume all Chartered banks are operating with no excess reserves and there is no cash drain. a. The maximum change in total deposits in the entire banking system is? $1 million. b. $1.25 million. - $20 million. d. $20 million. e. $25 million. c.

Answer 1

14)

Answer : (d)

By selling government securities to the banks , the money flow from the bank to central bank there by there is fall in the lending capacity of bank.

15)

Answer: (e)

Money multiplier : 1/rr

:1/.20

= 5

Total change : 5*5

= 25