If the chartered banking system borrows from the Bank of Canada.
A)The demand deposits of chartered banks are unchanged, but their reserves increase.
B)The demand deposits and reserves of chartered banks both decrease.
C)The demand deposits of chartered banks are unchanged, but their reserves decrease.
D)The demand deposits and reserves of chartered banks are both unchanged.

Question

Quizplus · Accepted Answer

When chartered banks borrow from the Bank of Canada, their reserves increase but their demand deposits remain unchanged. This is because the borrowed funds are added to the banks' reserve accounts, which increase their total reserves, but they do not affect the amount of money in circulation in the economy (represented by the demand deposits). Therefore, option A is the correct answer.

If the Chartered Banking System Borrows from the Bank of Canada