The Following Are Simplified Balance Sheets for the Chartered Banking

question 46

Essay

The following are simplified balance sheets for the chartered banking system and the Bank of Canada.Perform the two following transactions, (1) and (2), making appropriate changes in columns (1) and (2) in each balance sheet.Do not cumulate your answers.Also, answer these three questions for each part: (a) What change, if any, took place in the money supply as a direct result of this transaction? (b) What change, if any, occurred in chartered bank reserves? (c) What change occurred in the money-creating potential of the chartered banking system if the reserve ratio is 20%? All figures are in billions of dollars.Consolidated Balance Sheet: Chartered Banking System
Consolidated Balance Sheet: Bank of Canada
(1) Suppose a drop in the bank rate causes chartered banks to borrow an additional $2 billion from the Bank of Canada.Show the new sheet figures in column 1.(2) The Bank of Canada buys $3 billion of government bonds from the public.Show the new balance sheet figures in column 2.

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