The following is a simplified consolidated balance sheet for the chartered banking system and the Bank of Canada. Assume a desired reserve ratio of 5 percent for the chartered banks. All figures are in billions of dollars.

-Refer to the above information,suppose the Bank of Canada sells $2 in securities directly to the chartered banks.As a result of this transaction,the supply of money:
A) will directly increase by $2 and the money-creating potential of the chartered banking system will increase by $38.
B) will directly decrease by $2 and the money-creating potential of the chartered banking system will decrease by $40.
C) is not directly affected,but the money-creating potential of the chartered banking system will decrease by $40.
D) will decrease by $2,but the money-creating potential of the chartered banking system will not be affected.

Question

The following is a simplified consolidated balance sheet for the chartered banking system and the Bank of Canada. Assume a desired reserve ratio of 5 percent for the chartered banks. All figures are in billions of dollars.

-Refer to the above information,suppose the Bank of Canada sells $2 in securities directly to the chartered banks.As a result of this transaction,the supply of money:
A) will directly increase by $2 and the money-creating potential of the chartered banking system will increase by $38. 
B) will directly decrease by $2 and the money-creating potential of the chartered banking system will decrease by $40. 
C) is not directly affected,but the money-creating potential of the chartered banking system will decrease by $40. 
D) will decrease by $2,but the money-creating potential of the chartered banking system will not be affected.

Quizplus · Accepted Answer

The Answer of The following is a simplified consolidated balance sheet for the chartered banking system and the Bank of Canada. Assume a desired reserve ratio of 5 percent for the chartered banks. All figures are in billions of dollars.

-Refer to the above information,suppose the Bank of Canada sells $2 in securities directly to the chartered banks.As a result of this transaction,the supply of money:
A) will directly increase by $2 and the money-creating potential of the chartered banking system will increase by $38. 
B) will directly decrease by $2 and the money-creating potential of the chartered banking system will decrease by $40. 
C) is not directly affected,but the money-creating potential of the chartered banking system will decrease by $40. 
D) will decrease by $2,but the money-creating potential of the chartered banking system will not be affected.

The Following Is a Simplified Consolidated Balance Sheet for the Chartered