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10.7: Exercises for Chapter 10
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- Suppose a central bank buys $10 million on the open market. What effect does this have on the monetary base and the reserve position of the commercial banks?
- If the banks hold reserves equal to 2.5 percent of their deposit liabilities, and the public holds a constant amount of cash, calculate the effect of this open-market transaction on:
- The money supply.
- The banks' reserve balances.
- What is the Bank of Canada's monetary policy target?
- What monetary policy instrument does the Bank use to pursue this target?
- What do the Bank's procedures for implementing policy mean for its control over money supply?
- How does it choose the basic setting for the interest rate within the rule?
- How would it respond to a rise in the output gap (Y–YP)?
- How would the bank react to an inflation rate higher than its target inflation rate?
- Why would the bank decide to change the basic setting of its interest rate?