Recall that the Bank of Montreal maintains a deposit account at the Bank of Canada. Suppose...
Recall that the Bank of Montreal maintains a deposit account at the Bank of Canada. Suppose that instead of loaning the money, the Bank of Montreal deposits the $10,000 into its account at the Bank of Canada.
(i) What is the change in the Money Supply (M1+)? Note: If the Money Supply remains constant, simply answer $0
(ii) What is the change in the Monetary Base? Note: If the Monetary Base remains constant, simply answer $0
(iii) Illustrate with a T-Account the effect of the deposit on the Bank of Montreal’s assets and liabilities
(iv) Illustrate with a T-Account the effect of the deposit on the Bank of Canada’s assets and liabilities
Homework Answers
i) If bank of Montreal don't give loan ,then there won't be any money Multiplier effect and money supply will be Equal to Monetary base.
ii) Monetary base only change when , central bank provide new money into system through open market operations.
Monetary base wiil remain same.
iii)
There will be only one change, The loans will replace by deposit of 10,000 in assest section.
iv)
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Recall that the Bank of Montreal maintains a deposit account at
the Bank of Canada. Suppose...
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