Suppose the Bank of Canada raises its target for the overnight interest rate and longer-term rates in the market rise as a result.Households' and firms' demand for loans from the commercial banks would ________.In order to accommodate this change,the commercial banks require ________.

Question

Quizplus · Accepted Answer

When interest rates rise, the cost of borrowing increases, leading to a decrease in the demand for loans. Consequently, commercial banks would require fewer cash reserves as the demand for loans falls.

Suppose the Bank of Canada Raises Its Target for the Overnight