Any central bank,including the Bank of Canada,can implement its monetary policy by directly influencing either ________ or ________,but not both.

Question

Quizplus · Accepted Answer

The Bank of Canada can directly influence the money supply or the interest rate, but not both at the same time. When the Bank of Canada buys government securities, it injects money into the economy, increasing the money supply. When it sells government securities, it removes money from the economy, decreasing the money supply. By raising or lowering the overnight rate target, the Bank of Canada influences the interest rates that banks charge each other for short-term loans. When the overnight rate increases, it becomes more expensive for banks to borrow money, which increases the cost of borrowing for consumers and businesses, slowing down the economy. When the overnight rate decreases, the cost of borrowing decreases, which can stimulate economic growth.

Any Central Bank,including the Bank of Canada,can Implement Its Monetary