THE ECONOMICS OF MONEY,BANKING, AND FINANCIAL MARKETS 462

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PA R T V

Central Banking and the Conduct of Monetary Policy

14. If a bank sells $10 million of bonds back to the Bank
of Canada in order to pay back $10 million on the
advances it owes, what will be the effect on the
level of chequable deposits?
*15. If you decide to hold $100 less cash than usual and
therefore deposit $100 in cash in the bank, what
effect will this have on chequable deposits in the
banking system if the rest of the public keeps its
holdings of currency constant?

CANSIM Questions
16. An important aspect of the money supply process is
the money multiplier. Get monthly data from 1968 to
2009 on Statistics Canada CANSIM II series V37145
(monetary base), V37152 (M1** (gross)), and

V41552801 (M2** (gross)) from the Textbook
Resources area of the MyEconLab.
a. Calculate the M1** money multiplier. What is its
average value over your sample period?
b. Calculate the M2** money multiplier. What is its
average value?
c. Compare the two money multipliers.
d. Does it appear that the money multipliers are
increasing or decreasing?

17. Continuing from the previous question, compute the
growth rates of M1 and M2.
a. What is the average M1 growth rate? Its variance?
b. What is the average M2 growth rate? Its variance?
c. Which monetary aggregate is more variable?

WEB EXERCISES
1. An important aspect of the supply of money is bank
deposits with the Bank of Canada. Go to www.osfibsif.gc.ca and locate financial data for banks. This site
reports the consolidated balance sheet for all banks.
a. What is the current level of bank deposits with
the Bank of Canada?
b. What is the change in bank deposits with the
Bank of Canada since a year ago?
c. Based on (a) and (b), does it appear that bank
reserves with the Bank of Canada are increasing
or decreasing?

2. Go to www.bankofcanada.ca and click on Rates
and Statistics, then Indicators, and then choose
Summary of Key Monetary Policy Variables.
a. What is the 12-month growth rate of M2 (gross),
M1**, and M2**?
b. What is the change in the 12-month growth rate
in M2 (gross), M1**, and M2** since a year
ago?

Be sure to visit the MyEconLab website at www.myeconlab.com.This online
homework and tutorial system puts you in control of your own learning with
study and practice tools directly correlated to this chapter content.

On the MyEconLab website you will find the following appendices for this chapter:
Appendix 16.1:The Bank of Canada s Balance Sheet and the Monetary Base
Appendix 16.2:The M2+ Money Multiplier