If the Bank of Canada fears inflation it will undertake an open market _______ of securities, the overnight loans rate will _______ and the long- term real interest rate will _______.

Question

Quizplus · Accepted Answer

When the Bank of Canada fears inflation, it will sell securities in an open market operation to reduce the money supply, which leads to higher interest rates. The overnight loans rate will rise as liquidity is reduced, and the long-term real interest rate will also increase as a tighter monetary policy generally leads to higher interest rates to combat inflation.

If the Bank of Canada Fears Inflation It Will Undertake