10 In the table below you will find simplified consolidated balance sheets for the chartered banking system and the Bank of Canada. Use columns 1-3 to indicate how the balance sheets would read after each of transactions in parts (a) to (c) is completed. Do not cumulate your answers; that is, analyze each transaction separately, starting in each case from the numbers provided. All accounts are in billions of dollars. a. A decline in the bank rate prompts chartered banks to borrow an additional $6 billion from the Bank of Canada. Show the new balance-sheet figures in column 1 of each table b. The Bank of Canada sells $8 billion in securities to the public, who pay for the bonds with cheques. Show the new balance sheet figures in column 2 of each table. c. The Bank of Canada buys $7 billion of securities from chartered banks. Show the new balance sheet numbers in column 3 of each table. Instructions: All answers below are to be entered as whole numbers. Consolidated Balance Sheet: All chartered bank (billions of dollars) (1) (2) (3) Assets : Cash reserves $33 $39 $ 25 $ 40 Securities 60 60 60 53 Loans 60 60 60 60 Liabilities: Demand deposits $150 $ 150 142 $ 150 Advances from Bank of Canada 6 Balance Sheet: Bank of Canada (billions of dollars) (1) (2) (3) Assets : Securities $60 $ 60 $ 52 67 Advances to chartered banks Liabilities: Reserves of chartered banks $33 25 40 Government of Canada deposits Notes in circulation 27 d. Now review all of the above 3 transactions, asking yourself these three questions: (1) What change, if any, took place in the money supply as a direct and immediate result of each transaction? 2) What increase or decrease in chartered banks' cash reserves took place in each transaction? 3) Assuming a desired reserve ratio of 20 percent, what change in the money-creating potential of the chartered banking system occurred as a result of each transaction? Transaction a: 1. The money supply | did not chang V 2. Reserves |increased from $33 to $ 39 billion 3. Money-creating potential increased by $ 30 billion. Transaction b: 1. The money supply | decreased by $ 8 billion. 2. Reserves decreased V from $33 to $ 25 billion. 3. Money-creating potential decreased by $1 40 billion. Transaction c: 1. The money supply did not chang V 2. Reserves increased from $33 to $ 40 billion. 3. Money-creating potential increased by $[ 35 billion