When the Bank of Canada calls in a loan from a bank, the monetary base ________ and reserves ________.

Question

Quizplus · Accepted Answer

When the Bank of Canada calls in a loan from a bank, the bank's reserves decrease because they have to give back the funds that were borrowed from the Bank of Canada. As a result, the monetary base also decreases because the total amount of money available in the economy has decreased. This is because the money that the bank borrowed from the Bank of Canada was part of the monetary base.

When the Bank of Canada Calls in a Loan from a Bank