Suppose the Bank of Canada lowers its target for the overnight interest rate and longer-term rates in the market fall as a result.Households' and firms' demand for new loans from the commercial banks would ________.In order to make the new loans,the commercial banks require more ________.

Question

Quizplus · Accepted Answer

When the Bank of Canada lowers its target for the overnight interest rate, borrowing becomes cheaper. This typically leads to an increase in the demand for new loans from households and firms as they find it more attractive to finance new investments or spending. To make these new loans, commercial banks require more cash reserves. This is because banks need to maintain a certain level of reserves to meet regulatory requirements and to ensure they can meet withdrawal demands.

Suppose the Bank of Canada Lowers Its Target for the Overnight