Suppose the actual overnight interest rate is 4%.If the Bank of Canada lowers its target for the overnight rate to 3.75%,the money supply will eventually

Question

Quizplus · Accepted Answer

When the Bank of Canada lowers its target for the overnight rate, the supply of money in the economy tends to increase as banks and other financial institutions can borrow money from the central bank at a lower interest rate. This leads to an increase in excess reserves in the banking system, which can then be used to lend out more money to borrowers, thereby increasing the overall money supply. The Bank of Canada can also use open-market operations to further increase the money supply by purchasing government securities on the open market, which puts more money into circulation. Therefore, option A is the best choice.

Suppose the Actual Overnight Interest Rate Is 4