7. The Bank of Canada\'s tools of monetary supply Suppose the money supply (as m

Question

7. The Bank of Canada's tools of monetary supply Suppose the money supply (as measured by chequable deposits) is currently $750 billion. The required reserve ratio is 30%. Banks hold $225 billion in reserves, so there are no excess reserves. The Bank of Canada wants to decrease the money supply by $50 billion, to $700 billion. It could do this through open-market operations or by changing the required reserve ratio. Assume for this question that you can use the If the Bank of Canada wants to decrease the money supply using open-market operations, it should create value for depositor such as Yvette by doing which of the following? (Check all that apply.) create networks

Explanation / Answer

1. Multiplier = 1/required reserve ratio = 1/0.3 = 3.33

2. Change in Money supply needed = $50 billion

It should sell government securities worth 50/3.333 = $15 billion

3. Correct option: create networks

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