Which of the following best describes the consequences of an increase in the bank rate?
A)Banks will borrow more from Bank of Canada so reserves increase.
B)Banks will borrow more from Bank of Canada so reserves decrease.
C)Banks will borrow less from Bank of Canada so reserves increase.
D)Banks will borrow less from Bank of Canada so reserves decrease.

Question

Quizplus · Accepted Answer

An increase in the bank rate implies that it is now more expensive for banks to borrow from the central bank. As a result, banks will borrow less from the central bank, leading to a decrease in reserves. Therefore, option D is the correct choice.

Which of the Following Best Describes the Consequences of an Increase