Which statement best describes the outcomes of open-market purchases 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) The Bank of Canada borrows from member banks, which increases the money supply.
D) The Bank of Canada lends money to member banks, which decreases the money supply.

Question

Quizplus · Accepted Answer

When the Bank of Canada conducts open-market purchases, it buys government securities from banks and other financial institutions, thereby increasing their reserves. These increased reserves enable banks to make more loans, which increases the money supply. Therefore, the correct answer is A - Bank reserves increase, and the money supply increases.

Which Statement Best Describes the Outcomes of Open-Market Purchases Conducted