If the Bank of Canada buys government securities from the chartered banks, which of the following transactions take place?

Question

Quizplus · Accepted Answer

When the Bank of Canada buys government securities from chartered banks, it pays for these securities by transferring funds from the banks' accounts at the Bank of Canada to the banks' accounts at commercial banks. This increases the banks' reserves held at the Bank of Canada, but does not affect their demand deposits. Therefore, choice A is correct. Choices B, C, and D are incorrect because they involve changes to demand deposits that do not occur when the Bank of Canada buys securities.

If the Bank of Canada Buys Government Securities from the Chartered