The Bank of Canada purchases $6 million in government bonds from Bondholder X, who has a deposit at Frontenac Bank. a. As a result of this transaction the balance sheets of both the Bank of Canada and Frontenac Bank will change. The Bank of Canada's holdings of government bonds rise by $6 million on the assets Canada's balance sheet. Meanwhile Frontenac Bank's deposit at the Bank of Canada rises liabilities side of Frontenac Bank's balance sheet. Frontenac Bank's deposit at the Bank of Canada rises by $6 million on the assets side of Frontenac Bank's balance sheet. Bondholder X's deposit by $6 million on the liabilities side of Frontenac Bank's balance sheet. b. If the reserve ratio is 5%, Frontenac Bank's excess reserves increase by $5700000 side of the Bank of by $6 million on the c. The final maximum effect on the money supply is a(n) increase of $ 1.7 million.

The Bank of Canada purchases $6 million in government bonds from Bondholder X, who has a deposit at Frontenac Bank. a. As a result of this transaction the balance sheets of both the Bank of Canada and Frontenac Bank will change. The Bank of Canada's holdings of government bonds rise by $6 million on the assets Canada's balance sheet. Meanwhile Frontenac Bank's deposit at the Bank of Canada rises liabilities side of Frontenac Bank's balance sheet. Frontenac Bank's deposit at the Bank of Canada rises by $6 million on the assets side of Frontenac Bank's balance sheet. Bondholder X's deposit by $6 million on the liabilities side of Frontenac Bank's balance sheet. b. If the reserve ratio is 5%, Frontenac Bank's excess reserves increase by $5700000 side of the Bank of by $6 million on the c. The final maximum effect on the money supply is a(n) increase of $ 1.7 million.

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter21: The Monetary System

Section: Chapter Questions

Problem 6PA

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