Suppose the Bank of Canada increases its target for the overnight interest rate by 0.25 percentage points.In this situation,the Bank will likely need to accommodate the resulting change in the demand for money by

Question

Quizplus · Accepted Answer

When the Bank of Canada increases its target for the overnight interest rate, it is trying to reduce the demand for money. To accommodate this change, the Bank of Canada needs to decrease the supply of money. This can be achieved by selling government securities on the open market, which reduces the amount of money in circulation and increases the cost of borrowing. Therefore, the correct answer is (D) decreasing the supply of money by selling government securities on the open market.

Suppose the Bank of Canada Increases Its Target for the Overnight