When the Bank of Canada increases 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 increases the interest rate paid on reserves, banks are incentivized to hold more reserves, leading to an increase in the reserve-deposit ratio (rr).

When the Bank of Canada Increases the Interest Rate Paid