Any central bank, including the Bank of Canada, can implement its monetary policy by directly influencing either or , but not both.

Question

Quizplus · Accepted Answer

The Bank of Canada can directly influence either the money supply or the interest rate, but not both at the same time. When it increases the money supply, it lowers interest rates, and when it reduces the money supply, it raises interest rates. This is because increasing the money supply increases the amount of funds available for lending, which in turn leads to a decrease in the price of borrowing (a lower interest rate). Conversely, reducing the money supply lowers the amount of funds available for lending, which leads to an increase in the price of borrowing (a higher interest rate).

Any Central Bank, Including the Bank of Canada, Can Implement