The Following Is a Simplified Consolidated Balance Sheet for the Chartered

question 224

Multiple Choice

The following is a simplified consolidated balance sheet for the chartered banking system and the Bank of Canada.Assume a desired reserve ratio of 5 percent for the chartered banks.All figures are in billions of dollars.CONSOLIDATED BALANCE SHEET: CHARTERED BANKING SYSTEM BALANCE SHEET: BANK OF CANADA
Refer to the above information, suppose the Bank of Canada sells $2 in securities directly to the chartered banks.As a result of this transaction, the supply of money:

• A)will directly increase by $2 and the money-creating potential of the chartered banking system will increase by $38.
• B)will directly decrease by $2 and the money-creating potential of the chartered banking system will decrease by $40.
• C)is not directly affected, but the money-creating potential of the chartered banking system will decrease by $40.
• D)will decrease by $2, but the money-creating potential of the chartered banking system will not be affected.

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