When the Bank of Canada makes an open market purchase, its assets _______ and its liabilities _______.
A)decrease; increase
B)increase; increase
C)decrease; decrease
D)increase; decrease
E)decrease; do not change

Question

Quizplus · Accepted Answer

When the Bank of Canada (or any central bank) makes an open market purchase, it buys securities (like government bonds) from the market, which increases its assets (the securities it holds). To pay for these securities, it typically credits the reserve accounts of banks, which increases its liabilities (the amount it owes to these banks).

When the Bank of Canada Makes an Open Market Purchase