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

Question

Quizplus · Accepted Answer

The most direct and effective way for the Bank of Canada to reduce short-term market interest rates is by reducing its target for the overnight rate. This target rate sets the benchmark for other interest rates in the economy, and a lower target rate would lead to lower borrowing costs for businesses and households, which would stimulate economic activity. The other options listed could also have an impact on short-term interest rates, but they are less direct and may have unintended consequences for the broader economy. For example, reducing the money supply directly could lead to higher inflation, while reducing reserve requirements could reduce the stability of the banking system. Adjusting the rate paid on Treasury bills could also affect longer-term interest rates, in addition to short-term rates.

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