Assignment: The money supply is broadly defined to include all the deposits held with the chartered banks and near banks. The deposits with near banks, on average, are equal to 80% of those held with the chartered banks. Currency held by the public to satisfy their day-to-day needs is equal to 10% of total deposits held by the depository institutions. The chartered banks cash reserve ratio is 3%, and that of the near banks is 3.5%.
Question 1: The bank of canada increases the monetary base by $50 million. Calculate the chartered banks' deposit multiplier, and the increase in chartered bank deposits.
Question 2: Calculate the increase in the money supply.
Question 3: Derive the money supply multiplier equation, and use it to check your answer in (b) above.