Suppose each bank in Canada had to keep 100 percent of chequable deposits as reserves.For each $1 the Bank of Canada injects into new reserves, by what amount does the money supply increase?

Question

Quizplus · Accepted Answer

If each bank in Canada had to keep 100 percent of chequable deposits as reserves, then injecting $1 into new reserves would increase the money supply by an equal amount of $1 because banks would not be able to loan out any additional funds without exceeding their reserve requirements. Thus, the total money supply would increase by the amount injected by the Bank of Canada.

Suppose Each Bank in Canada Had to Keep 100 Percent