The Bank of Canada would like to stimulate the economy and increase the money supply. Which of the following would be most effective?

Question

Quizplus · Accepted Answer

Decreasing the overnight rate would make it cheaper for banks to borrow money from the Bank of Canada, which would encourage them to lend more money to consumers and businesses, increasing the money supply and stimulating the economy. Increasing the prime rate or overnight rate would have the opposite effect, making it more expensive for consumers and businesses to borrow money and potentially slowing down economic activity. Selling government securities through open market operations can also be used to decrease the money supply, so it would be counterproductive to the goal of stimulating the economy.

The Bank of Canada Would Like to Stimulate the Economy