If a member of the nonbank public purchases a government bond from the Bank of Canada in exchange for currency, the monetary base will ________, but reserves will ________.

Question

Quizplus · Accepted Answer

When a member of the nonbank public purchases a government bond from the Bank of Canada in exchange for currency, the monetary base falls because currency in circulation (a component of the monetary base) decreases. Reserves remain unchanged because this transaction does not directly affect the banking system's reserves at the central bank.

If a Member of the Nonbank Public Purchases a Government