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

Question

Quizplus · Accepted Answer

An increase in the bank rate means that it is more expensive for banks to borrow from the Bank of Canada. Therefore, banks will borrow less and reserves will decrease.

Which Statement Best Describes the Outcome of an Increase in the Bank