A. Assume money supply (M) is $1,000 billion, total bank deposits (D) are $800 billion and the required reserve-deposit ratio (rr) is 20% and cash-deposit ratio (cr) is 25%. If the Bank of Canada purchases $3 million worth of Treasury bills, by how much the banking system creates total money supply?
B. Determine the optimal average cash balance for the person who earns $1000 per month (Y), can earn 0.5 percent interest per month (i) in a saving account, and has a trip to bank cost i.e. transaction cost (F) of $1.