This will trigger a major effect on banks being a main financial intermediary in the Canadian economy. The main function of banks is to accept deposits and in turn, loan out money while keeping a stable required reserves which is usually at 10%. When the government is making use of an expansionary fiscal policy, more public spending creates more jobs thus lowering the unemployment rate, and a lower tax rate will enable those additional workers to have an increased disposable income. This will trigger spending and boost the economy. In this situation, the banks will have an increased number of deposits, and will eventually loan out more money; this increases money supply in the economy. As the money supply increases through banks, the money multiplier effect will come into action and will further stimulate money supply. Furthermore, the Canadian government needs to practice what is called fiscal deficit spending to stimulate the economy. This means that the government will spend more money than they collect through tax revenues. Therefore, the government will need to borrow funds, which results in increased public