Chapter 15

Question 1

Three Players in the Money Supply Process

Answer 1

1. The central bank (Bank of Canada)
   – The government agency that oversees the banking
   system and is responsible for the conduct of monetary policy
2. Banks (depository institutions)
   – The financial intermediaries that accept deposits from individuals and institutions and make loans
3. Depositors
   – Individuals and institutions that hold deposits in banks

Question 2

What are settlement balances?

Answer 2

Banks have an account at the Bank of Canada in
which they hold deposits (also called settlement
balances)

Question 3

What two things are the Bank of Canada’s reserves made up of?

Answer 3

Reserves consist of settlement balances at the
Bank of Canada plus vault cash

Question 4

Two important items that affect the monetary base
but are not controlled by the Bank of Canada?

Answer 4

– Float (occurring from the Bank’s cheque clearing
process)
– Government deposits at the Bank of Canada