To raise short- term market interest rates, the Bank of Canada could

Question

Quizplus · Accepted Answer

The most effective way for the Bank of Canada to raise short-term market interest rates is to increase its target for the overnight rate. The overnight rate is the interest rate at which major financial institutions borrow and lend one-day (or overnight) funds among themselves. By increasing the target for this rate, the Bank of Canada signals to the market that it wants to tighten monetary policy, making it more expensive for banks to borrow money and therefore increasing short-term interest rates. The other options (A, B, D, and E) may have some impact on short-term interest rates, but they are not as direct or powerful as increasing the target for the overnight rate.

To Raise Short- Term Market Interest Rates, the Bank of Canada