Two monetary policy instruments that the Bank of Canada can use are
A)the foreign exchange rate and the government budget balance.
B)the current account balance and the capital and financial account balance.
C)the monetary base and the short- term interest rate.
D)the quantity of Canadian dollars held in Canadian banks and the quantity fo Canadian dollars held by foreign central banks.
E)the federal government budget balance and the real interest rate.

Question

Quizplus · Accepted Answer

The two monetary policy instruments that the Bank of Canada can use are the monetary base and the short-term interest rate. The monetary base refers to the total amount of money in circulation in the economy, including both cash and bank reserves. The Bank of Canada can adjust the monetary base by buying or selling government securities in the open market. The short-term interest rate is the rate at which banks lend to one another overnight. By adjusting the short-term interest rate, the Bank of Canada can influence the borrowing and spending behavior of consumers and businesses, and thereby affect economic activity and inflation.

Two Monetary Policy Instruments That the Bank of Canada Can