Assume that the desired reserve ratio is 20 percent.Suppose that the Bank of Canada sells $500 of government securities to chartered banks and buys $500 of securities from individuals, who deposit the cash in chequing accounts.Refer to the above information.As a result of these transactions, reserves in the banking system will:
A)remain unchanged.
B)rise by $100.
C)fall by $100.
D)fall by $1,000.

Question

Quizplus · Accepted Answer

The sale and purchase of securities offset each other, leaving the reserves unchanged.

Assume That the Desired Reserve Ratio Is 20 Percent