To decrease the money supply, the Bank of Canada could

Question

Quizplus · Accepted Answer

Conducting an open market sale of government securities would decrease the money supply. When the Bank of Canada sells government securities to commercial banks, that money is removed from the economy and placed into the bank's reserves. This reduces the amount of money available for lending, therefore reducing the overall money supply. Lowering the overnight interest rate or increasing lending to commercial banks would have the opposite effect and increase the money supply. Raising income taxes or the desired reserve ratio may have an impact on the economy, but they would not directly decrease the money supply.

To Decrease the Money Supply, the Bank of Canada Could