Suppose that the Bank of Japan buys Canadian dollar assets with yen-denominated assets. Everything else held constant, this transaction will cause ________ in the foreign assets held by the Bank of Canada and ________ in the Canadian monetary base.

Question

Quizplus · Accepted Answer

When the Bank of Japan buys Canadian dollar assets with yen, it increases the foreign assets held by the Bank of Canada because the transaction involves the Bank of Japan acquiring assets denominated in Canadian dollars. This action also increases the Canadian monetary base because it injects more Canadian dollars into the system, as the Bank of Japan converts yen to Canadian dollars to make the purchase.

Suppose That the Bank of Japan Buys Canadian Dollar Assets