Question: Need help with this question: Keeps saying 95 million is wrong The Bank of Canada purchases $5 million in government bonds from Bondholder X, who
Need help with this question: Keeps saying 95 million is wrong

The Bank of Canada purchases $5 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 $5 million on the assets side of the Bank of Canada's balance sheet. Meanwhile Frontenac Bank's deposit at the Bank of Canada | rises by $5 million on the liabilities side of Frontenac Bank's balance sheet. Frontenac Bank's deposit at the Bank of Canada | rises by $5 million on the assets side of Frontenac Bank's balance sheet. Bondholder X's deposit | rises by $5 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 $ 4,750,000 c. The final maximum effect on the money supply is a(n) |increase of $ 95 x million
Step by Step Solution
There are 3 Steps involved in it
Get step-by-step solutions from verified subject matter experts
