In the simple deposit expansion model, an expansion in chequable deposits of $1000 when the desired reserve ratio is equal to 20 percent implies that the Bank of Canada ________.

Question

Quizplus · Accepted Answer

An expansion in chequable deposits of $1000 with a desired reserve ratio of 20% means that banks need to hold $200 as reserves (20% of $1000). To meet this reserve requirement, the Bank of Canada needs to purchase $200 in government bonds (which are assets that banks can hold as reserves). Therefore, the correct choice is C - the Bank of Canada purchased $200 in government bonds.

In the Simple Deposit Expansion Model, an Expansion in Chequable