Switching government deposits from the Bank of Canada to chartered banks I: increases the money supply.II: increases the federal budget deficit.

Question

Quizplus · Accepted Answer

Switching government deposits from the Bank of Canada to chartered banks increases the reserves of the chartered banks. This enables them to create more loans, thereby increasing the money supply in the economy (I is true). However, this does not directly affect the federal budget deficit, thus II is not true.

Switching Government Deposits from the Bank of Canada to Chartered