When the Bank of Canada fights recession by lowering the overnight loans rate, the supply of reserves curve shifts _______ and the supply of money curve shifts _______.

Question

Quizplus · Accepted Answer

When the Bank of Canada lowers the overnight loans rate to fight recession, it effectively makes it cheaper for banks to borrow money. This increases the reserves banks have available to lend out, shifting the supply of reserves curve rightward. As banks have more reserves, they can create more money through lending, which shifts the supply of money curve rightward as well.

When the Bank of Canada Fights Recession by Lowering the Overnight