Describe, and illustrate with balance sheets of both the Bank of Canada and the
ID: 1092794 • Letter: D
Question
Describe, and illustrate with balance sheets of both the Bank of Canada and the direct clearers with the Canadian Payments Association, the change in the monetary base in response to the following transactions:
a. A Bank of Canada open market sale to the public of $100 million of Government of Canada securities.
b. Are deposit of $200 million worth of Government of Canada deposits.
c. A $300 million advance made by the Bank of Canada to a chartered bank.
d. A $400 million Purchase and Resale Agreement made by the Bank of Canada with the money market jobbers.
e. The Bank of Canada intervenes in the foreign exchange market with a $500 million purchase of American currency ($US 1.00 = $Can. 1.55). It uses an open market transaction to sterilize its foreign exchange intervention.
f. Rather than an open market transaction, the Bank of Canada shifts Government of Canada deposits to sterilize its foreign exchange intervention in (e) above.
Explanation / Answer
The economy is a collection of millions of individual consumers and firms interacting on a daily basis to determine which goods and services will be produced, which firms will supply various products, which consumers will take them home at the end of the day, and what prices will be paid for the many different products. Even in predominantly marketeconomies, such as Canada and the United States, governments at all levels play an important role