Suppose the Bank of Canada lowers its target for the overnight interest rate and longer- term rates in the market fall as a result. Households' and firms' demand for new loans from the commercial banks would . In order to make the new loans, the commercial banks require more .

Question

Quizplus · Accepted Answer

When interest rates fall, borrowing becomes cheaper, leading to an increase in demand for loans. To accommodate this increased demand, banks need more cash reserves to lend out.

Suppose the Bank of Canada Lowers Its Target for the Overnight