When the Bank of Canada purchases a government bond from a bank, reserves in the banking system ________ and the monetary base ________, everything else held constant.

Question

Quizplus · Accepted Answer

When the Bank of Canada purchases a government bond from a bank, reserves in the banking system will increase as the bank now has more cash reserves. Additionally, the monetary base will increase as the Bank of Canada's purchase injects new money into the economy.

When the Bank of Canada Purchases a Government Bond from a Bank