a) Suppose the Government of Canada buys $12 million worth of equipment from private firms and pays for that purchase with cheques draw from its bank account at the Bank of Canada (BOC). After the private firms have deposited the government cheques in the commercial banking sector and the commercial banks have presented the cheques to the BOC, use a separate balance sheet for the BOC and the commercial banking sector to show the changes.
(b) In a separate transaction suppose the commercial banks repay a loan to the BOC worth $15 million. Use a separate balance sheet for the BOC and the commercial banks to show the changes to their respective balance sheets as a result of this action.
(c) As a result of the actions in part (a) and part (b) what is the combined effect on settlement balances held by Canadian commercial banks at the BOC? Show in a balance sheet for the Canadian commercial banks.
