Question

Which of the following would likely increase the money supply?

	a.	A chartered bank sells securities to the Bank of Canada.
	b.	A chartered bank buys securities from the Bank of Canada.
	c.	One bank buys government securities from another bank.
	d.	The desired reserve ratio increases.

Answer 1

Option a

A chartered bank sells securities to the Bank of Canada.

A sell of securities to banks of Canada (central bank of the country) means the money goes in the economy and securities to Bank of Canada. It increases the money supply in the economy.

A buy will decrease the money supply as the money goes to the Bank of Canada.

Trading of government securities between banks will not change the money supply.

Increase in desired reserve ratio decreases the money supply as banks need to keep more reserves and can make fewer loans.