When the Bank of Canada conducts open-market purchases, how do commercial banks' assets most likely change?
A) Reserves increase, and banks increase lending.
B) Reserves increase, and banks decrease lending.
C) Reserves decrease, and banks increase lending.
D) Reserves decrease, and banks decrease lending.

Question

Quizplus · Accepted Answer

When the Bank of Canada conducts open-market purchases, it is injecting money into the economy. This increases the reserves of commercial banks, giving them more money to lend out. As a result, it is likely that banks will increase their lending activities.

When the Bank of Canada Conducts Open-Market Purchases, How Do