Due on Nov 13 at 11:59 PM EST the banking system. The banks currently have no As

Question

Due on Nov 13 at 11:59 PM EST the banking system. The banks currently have no Assume that the following balance sheet portrays the state of excess reserves $5 billion 25 billion 20 billion Chequable deposits $50 billion Loans Securities Total $50 Total $50 billion What is the required reserve ratio? 25% 10% @ 40% Suppose the Bank of Canada sells $4 million of bonds to a bond dealer, who pays the Bank of Canada by writing a cheque against the funds in her chequing account. What is the initial impact of this transaction? O Chequable deposits fall by $4 million, and the banking system's holdings of securities fall by $4 million. The banking system's holdings of securities fall by $4 million, and the banking system's total reserves rise by $4 million. O The banking system's holdings of securities rise by $4 million, and the banking system's total reserves fall by $4 million. Chequable deposits fall by $4 million, and the banking system's total reserves fall by $4 million. O As a result of the Bank of Canada's sale of potentially $4 million of securities, chequable deposits in the banking system can by as much as

Explanation / Answer

1. Required reserve ratio = reserves/deposits = 5/50 = 10%

2. Correct option: (b)

3. Increase; 4*10 = $40 million

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