Include correctly labeled diagrams, if useful or required, in explaining your answers. A correctly labeled diagram must have all axes and curves clearly labeled and must show directional changes. If the question prompts you to “Calculate,” you must show how you arrived at your final answer.


Canary Bank is a commercial bank in Econland with the following balance sheet (T-account). The banking system in Econland has limited reserves.

Assets Liabilities
Reserves
Demand Deposits
Government Bonds
Owners’ Equity
(a) Calculate the required reserve ratio if Canary Bank holds no excess reserves. Show your work.

(b) The central bank of Econland buys
of government bonds from Canary Bank.