When a chartered bank borrows from the Bank of Canada:
A)the supply of money automatically increases.
B)it indicates that the chartered bank is unsound financially.
C)the chartered bank's lending ability is increased.
D)the chartered bank's reserves are reduced.

Question

Quizplus · Accepted Answer

When a chartered bank borrows from the Bank of Canada, it increases its lending ability as it now has more funds available to lend out. This borrowing does not automatically increase the supply of money as it is still subject to the lending practices of the chartered bank. It does not necessarily indicate that the bank is unsound financially, but it may suggest that the bank is experiencing a temporary shortfall in reserves. Therefore, option C is the best choice. Option A and D are incorrect, and option B may be true in some cases but is not always the case.

When a Chartered Bank Borrows from the Bank of Canada