When the Bank of Canada buys $100 worth of bonds from First National Bank, reserves in the banking system ________.

Question

Quizplus · Accepted Answer

When the Bank of Canada buys $100 worth of bonds from First National Bank, the Bank of Canada pays for these bonds with newly created reserves. Therefore, reserves in the banking system increase by the same amount as the purchase price of the bonds, which is $100 in this case.

When the Bank of Canada Buys $100 Worth of Bonds