Currently there are zero excess reserves in the Canadian banking system.If the required reserve ratio is 20 percent and the Bank of Canada sells 20 million in bonds,the maximum amount that the money supply can change is

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When the Bank of Canada sells $20 million in bonds, it takes $20 million out of the banking system. With a required reserve ratio of 20%, banks must hold 20% of deposits as reserves. The money multiplier is 1 / reserve ratio = 1 / 0.20 = 5. Therefore, the maximum change in the money supply is $20 million * 5 = $100 million. This is a contraction in the money supply because the Bank of Canada's sale of bonds reduces bank reserves and thus the ability of banks to create new loans.

Currently There Are Zero Excess Reserves in the Canadian Banking