Which statement best describes the consequences of open-market sales conducted by the Bank of Canada?
A) Bank reserves increase, and the money supply increases.
B) Bank reserves increase, and the money supply decreases.
C) Bank reserves decrease, and the money supply increases.
D) Bank reserves decrease, and the money supply decreases.

Question

Quizplus · Accepted Answer

When the Bank of Canada conducts open-market sales, it is selling government securities to the public, which reduces bank reserves. This, in turn, reduces the ability of banks to create new money through lending, leading to a decrease in the money supply.

Which Statement Best Describes the Consequences of Open-Market Sales Conducted