Use the following to answer questions:
-Suppose the Bank of Canada buys $50 million in Treasury bills from commercial banks.If the reserve ratio is 10%,the monetary supply might eventually _____ by _____.

Question

Use the following to answer questions: 
-Suppose the Bank of Canada buys $50 million in Treasury bills from commercial banks.If the reserve ratio is 10%,the monetary supply might eventually _____ by _____.

Quizplus · Accepted Answer

When the Bank of Canada buys $50 million in Treasury bills, it injects that amount into the banking system. With a reserve ratio of 10%, banks can lend out 90% of deposits, leading to a money multiplier effect. The money multiplier is 1/reserve ratio, which is 10 in this case. Therefore, the money supply can increase by $50 million * 10 = $500 million.

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