The Following Are Simplified Consolidated Balance Sheets for the Chartered

question 193

Multiple Choice

The following are simplified consolidated balance sheets for the chartered banking system and the Bank of Canada.Do not cumulate your answers;that is,do return to the data given in the original balance sheets in answering each question.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 buys $2 in securities from the public.As a result of this transaction,the supply of money will:

• A) directly increase by $2 and the money-creating potential of the chartered banking system will increase by $38.
• B) directly increase by $40 and the money-creating potential of the chartered banking system will increase by $800.
• C) directly increase by $2 and the money-creating potential of the chartered banking system will be unaffected.
• D) be unaffected but the money-creating potential of the chartered banking system will increase by $40.

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Definitions:

Post-closing Trial Balance

A trial balance prepared after closing entries are made, used to check the balance of debits and credits have been maintained throughout the period after all closing entries are completed.

Financial Statements

Comprehensively prepared records presenting the financial activities and position of a business, person, or entity.

Work Sheet

A document used by accountants to prepare adjusting entries and to draft a company's financial statements, summarizing all of the ledger account balances.

Liabilities

Financial obligations or debts owed by a company to creditors or suppliers.