6.(a) Suppose the Government of Canada (GOC) buys $8 million worth of equipment from private firms...

6.(a) Suppose the Government of Canada (GOC) buys $8 million worth of equipment from private firms and pays for that purchase with cheques draw from its bank account at the Bank of Canada (BOC). After the private firms have deposited the government cheques in the commercial banking sector and the commercial banks have presented the cheques to the BOC, use a separate balance sheet for the BOC and the commercial banking sector to show the changes.

(b) In a separate transaction suppose taxpayers pay $5 million in taxes to the GOC using cheques drawn on commercial banks. After the GOC has deposited the cheques in its account at the Bank of Canada the commercial banking sector and the BOC has presented the cheques to the taxpayers’ commercial banks, use a separate balance sheet for the BOC and the commercial banking sector to show the changes.

(c) As a result of the actions in part (a) and part (b) what is the combined effect on settlement balances held by Canadian commercial banks at the BOC? Show in a balance sheet for the ****** Canadian Commercial banks. What has happened to the monetary base?

Expert Solution

Rahul Sunny answered 2 years ago

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