The sale of government securities by the Bank of Canada

Question

Quizplus · Accepted Answer

When the Bank of Canada sells government securities, it is essentially withdrawing money from the banking system. Banks use their reserves to purchase these securities, so the sale of securities decreases the banks' reserves. This means banks have less money to loan out, which can lead to increased interest rates and decreased borrowing by the public. Overall, this action decreases the quantity of money in circulation, rather than increasing it.

The Sale of Government Securities by the Bank of Canada