Which statement best describes the outcome of a decrease in the bank rate?
A) Banks will borrow less from Bank of Canada, so reserves increase.
B) Banks will borrow less from Bank of Canada, so reserves decrease.
C) Banks will borrow more from Bank of Canada, so reserves increase.
D) Banks will borrow more from Bank of Canada, so reserves decrease.

Question

Quizplus · Accepted Answer

A decrease in the bank rate, which is the interest rate at which commercial banks can borrow from the central bank (in this case, the Bank of Canada), makes borrowing cheaper for banks. As a result, banks are likely to borrow more from the central bank, leading to an increase in their reserves.

Which Statement Best Describes the Outcome of a Decrease in the Bank