When the Bank of Canada sells a bond to a member of the public:

Question

Quizplus · Accepted Answer

When the Bank of Canada sells a bond to a member of the public, money is withdrawn from the economy, reducing the money supply. This is because the buyer of the bond pays with money that was previously circulating in the economy, and now that money is locked up as an asset for the buyer. This means that there is less money available for banks to lend, reducing the lending ability of the banking system and potentially reducing the money multiplier. Bank reserves may stay the same if the funds used to purchase the bond were previously held as reserves.

When the Bank of Canada Sells a Bond to a Member