1. Economists have announced that the country is experiencing aninflationary gap. What economic symptoms or indicators would make the economists draw this conclusion? At this point does AE exceed AO or fall below it?
2. Name and explain two MONETARY policy tools the Bank of Canada can use to close the gap you identified above.
3. Use the figures in the table below to answer the following questions.
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$ Billions
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Personal savings deposits at chartered banks
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215
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Currency held outside of chartered banks
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80
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Non-personal notice deposits at chartered banks
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400
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Deposits at non-bank deposit taking institutions
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200
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Money-market mutual funds
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75
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Life insurance annuities
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40
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Demand deposits in chartered banks
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150
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Canada Savings Bonds
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5
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Non-money-market mutual funds
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500
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a) What is the value of M1?
b) What is the value of M2?
c) What is the value of M2+?
d) What is the value of M2++?
4. Answer the following questions using the information below.Assume the desired reserve ratio is 33%.
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Balance Sheet Chartered Bank AAA
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Assets
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Liabilities
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Reserves
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$60,000
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Demand Deposits
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$150,000
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Loans
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60,000
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Capital Stock
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300,000
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Securities
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40,000
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Property
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290,000
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Total Assets
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450,000
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Total Liabilities
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450,000
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a) What is the dollar amount of excess reserves?
b) By what dollar amount can this bank safely expand its loans?
c) By expanding its loans by the amount in part (b), what would its demand deposits equal (if all loans were made to customers holding demand deposits)?