If the Bank of Canada Enters the Open Market and Purchases

question 27

Multiple Choice

If the Bank of Canada enters the open market and purchases $1000 of government securities, what will be the eventual change in the money supply given a 10 percent target reserve ratio in the commercial banking system?

• A)decrease of $10 000
• B)increase of $5000
• C)decrease of $5000
• D)decrease of $1000
• E)increase of $10 000

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Definitions:

Variance

A measure of the dispersion or spread of a set of data points, calculated as the average of the squared deviations from the mean.

Mean

A measure of central tendency that is calculated by adding up all the values in a set and then dividing by the number of values.

Standard Deviation

An appraisal of the diversity or spread level exhibited by a collection of figures.

Normally Distributed

Refers to a probability distribution which is evenly shaped around the mean, indicating that occurrences of data close to the mean are more common than occurrences of data distant from the mean.