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

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When the desired reserve ratio is 20 percent, a decline in chequable deposits of $1000 implies that the banking system as a whole has $200 less in reserves (20% of $1000). If the Bank of Canada sold $200 in government bonds, it would withdraw $200 from the banking system, matching the decrease in reserves implied by the decline in deposits. This action reduces the money supply, consistent with the scenario described.

In the Simple Deposit Expansion Model, a Decline in Chequable