Assume That There Is a 25 Percent Desired Reserve Ratio

question 121

Multiple Choice

Assume that there is a 25 percent desired reserve ratio and that Bank of Canada buys $200 million worth of government securities.If the securities are purchased from the public, then this action has the potential to increase bank lending by a maximum of:

• A)$600 million, and also by $600 million if the securities are purchased directly from chartered banks.
• B)$800 million, and also by $800 million if the securities are purchased directly from chartered banks.
• C)$600 million, but by $800 million if the securities are purchased directly from chartered banks.
• D)$800 million, but only by $600 million if the securities are purchased directly from chartered banks.

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