The Following Is a Simplified Consolidated Balance Sheet for the Chartered

question 227

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.


-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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