If government deposits at the Bank of Canada are predicted to increase, the manager of the trading desk at the Bank will likely conduct activities to ________ reserves.

Question

Quizplus · Accepted Answer

When government deposits at the Bank of Canada increase, it means that the government is collecting more money (e.g., through taxes or other revenues) which is being deposited at the central bank. This action effectively removes money from the banking system, reducing the reserves that banks have available for lending. To counteract this and maintain the desired level of reserves in the banking system, the manager of the trading desk at the Bank of Canada would likely conduct open market operations to inject reserves into the banking system. This is done by purchasing securities in the open market, which increases the amount of money banks have available.

If Government Deposits at the Bank of Canada Are Predicted