If the Bank of Canada increases reserve requirements,overnight rate will likely increase,banks will loan less,and the money supply will likely decrease.

Question

Quizplus · Accepted Answer

When the Bank of Canada increases reserve requirements, commercial banks are required to hold more reserves which reduces their ability to lend money. This leads to a decrease in the money supply, which in turn puts upward pressure on the overnight rate as demand for money increases. Therefore, the statement is true.

If the Bank of Canada Increases Reserve Requirements,overnight Rate Will