Use the following to answer questions:
-If the Bank of Canada buys $250 million worth of Canadian Treasury bills in the open market and the reserve ratio is 10%,then the money supply will:

Question

Use the following to answer questions: 
-If the Bank of Canada buys $250 million worth of Canadian Treasury bills in the open market and the reserve ratio is 10%,then the money supply will:

Quizplus · Accepted Answer

When the Bank of Canada buys Treasury bills, it injects money into the banking system, increasing reserves. With a reserve ratio of 10%, banks can lend out 90% of their deposits, leading to a money multiplier effect. The potential increase in the money supply is calculated as the initial injection ($250 million) divided by the reserve ratio (0.10), resulting in a potential increase of $2,500 million.

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