Question

Which of the following will tend to increase bank reserves?

a. the purchase of bonds in the open market by the Bank of Canada federal tax collections
b. an increase in the target overnight rate
c. the sale of bonds in the open market by the Bank of Canada
d. a budget deficit by the federal government

Answer 1

Buying bonds in the open market by the Bank of Canada will tend to increase bank reserves. Selling bonds in the open market by the Bank of Canada will reduce bank reserves and the quantity of money in the economy.

Step-by-step explanation:

Buying bonds in the open market by the Bank of Canada will tend to increase bank reserves. When the central bank buys bonds, money flows from the central bank to individual banks, increasing the money supply in circulation. On the other hand, selling bonds in the open market by the Bank of Canada will reduce bank reserves and the quantity of money in the economy.