Suppose the Bank of Canada buys $1,200 worth of Canadian government securities, and chequing deposits increase by $6,000 after all the rounds of the money-creation process are completed.What is the maximum value of the desired reserve ratio?

Question

Quizplus · Accepted Answer

The desired reserve ratio is calculated by dividing the initial change in bank reserves by the total change in the money supply. Here, the initial change in reserves is $1,200 (from the purchase of government securities), and the total change in the money supply is $6,000. Thus, the desired reserve ratio is $1,200 / $6,000 = 0.2.

Suppose the Bank of Canada Buys $1,200 Worth of Canadian