Suppose the banking system has no excess reserves and the desired reserves are equal to 20 percent of chequable deposits.And suppose the Bank of Canada sells $10,000 in securities to Joe Bank Customer.What is the maximum amount that chequable deposits in the banking system could fall?

Question

Quizplus · Accepted Answer

When the Bank of Canada sells $10,000 in securities, it reduces the reserves of the banking system by that amount. With a reserve requirement of 20%, the maximum amount that chequable deposits can decrease is calculated by the formula: change in reserves / reserve ratio. Therefore, $10,000 / 0.20 = $50,000.

Suppose the Banking System Has No Excess Reserves and the Desired