Analyze each of the following statements and determine whether it is True, False, or Uncertain. Marking will be based entirely on the supporting arguments. Therefore, try to be thorough in your answers and base your discussion on the theories that have been reviewed in this course.
a.The effect of an open market purchase on reserves differs depending on how the seller of the bonds keeps the proceeds. If the proceeds are kept in currency, the open market purchase has no effect on reserves; if the proceeds are kept as deposits, reserves increase by the amount of the open market purchase.
b.If the overnight rate is below its target for the day, the Bank of Canada will enter into Special Purchase and Resale Agreements (SRPAs) to drive it up to its target.
c.If Canadians refrained from using cash and started using credit cards instead, the money supply will increase, other things being equal.
d.In the money creation process the simple money multiplier ignores the possibility of currency drain. That resulted in the monetary base being overstated.
e.Investors will probably wish to buy bonds when interest rates are low in the hope of selling them at higher prices when interest rates high
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