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

question 156

Multiple Choice

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.

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Definitions:

Marginal Utility

The additional satisfaction or utility that a consumer derives from consuming an additional unit of a good or service.

Price of Apple

The cost at which an apple, as a fruit or as a company's stock (Apple Inc.), can be purchased, depending on context.

Price of Orange

Refers to the cost to purchase a single unit or a specified amount of oranges in a given market.

Substitution Effect

The economic principle that as prices rise or income decreases, consumers replace more expensive items with less costly alternatives.