Describe the Canadian money supply also foreign exchange marketplace operation
1. According to the quantity theory of money, Illustrate what is the effect of an increase in the quantity of money?
2. Suppose which the Bank of Canada sells 100 million pounds sterling from its foreign exchange reserves also which the exchange rate is $2.40 Canadian per pound sterling.
i) Elucidate Illustrate what happens to the Canadian money supply.
ii) Now suppose which the Bank of Canada does not want the money supply to change. Illustrate what would it need to do to sterilize its foreign exchange marketplace operation?
3. Illustrate what is the maximum amount which the money supply can increase whenever $1,000 cash is injected into a banking system with a 20-percent reserve requirement? Give two reasons Elucidate why this maximum may not be reached.