When the Bank of Canada increases the overnight rate, it:
A)increases the reserve to deposit ratio (rr).
B)decreases the reserve to deposit ratio (rr).
C)is likely to increase the monetary base (B).
D)is likely to decrease the monetary base (B).

Question

Quizplus · Accepted Answer

When the Bank of Canada increases the overnight rate, it typically leads to a decrease in the monetary base (B) as it becomes more expensive for banks to borrow money, leading to a contraction in the money supply.

When the Bank of Canada Increases the Overnight Rate, It