Which of the following is correct? When the Bank of Canada buys bonds on the open market, the money supply:
A)contracts and chartered bank reserves increase.
B)expands and chartered bank reserves decrease.
C)contracts and chartered bank reserves decrease.
D)expands and chartered bank reserves increase.

Question

Quizplus · Accepted Answer

When the Bank of Canada buys bonds on the open market, it injects money into the economy, which results in an expansion of the money supply. This also increases the reserves of chartered banks, as they receive payment from the Bank of Canada in exchange for the bonds. Therefore, the correct answer is D: expands and chartered bank reserves increase.

Which of the Following Is Correct? When the Bank of Canada