Which of the following best describes the outcome of an increase in the bank rate?
A)Banks will borrow more from Bank of Canada, so reserves increase.
B)Banks will borrow more from Bank of Canada, so reserves decrease.
C)Banks will borrow less from Bank of Canada, so reserves increase.
D)Banks will borrow less from Bank of Canada, so reserves decrease.

Question

Quizplus · Accepted Answer

An increase in the bank rate makes it more expensive for banks to borrow from the central bank, so they are likely to borrow less. This will decrease the amount of reserves in the banking system.

Which of the Following Best Describes the Outcome of an Increase