When the Bank of Canada decreases the interest rate paid on reserves, it:
A)increases the reserve-deposit ratio (rr).
B)decreases the reserve-deposit ratio (rr).
C)increases the monetary base (B).
D)decreases the monetary base (B).

Question

Quizplus · Accepted Answer

When the Bank of Canada decreases the interest rate paid on reserves, banks are less incentivized to hold excess reserves, leading to a decrease in the reserve-deposit ratio as they lend out more of their reserves.

When the Bank of Canada Decreases the Interest Rate Paid