If the Bank of Canada wants to eliminate an inflationary gap, which of the following would be an appropriate policy?
A)Raise the overnight loans rate.
B)Lower the overnight loans rate.
C)Buy government securities.
D)Decease the government budget deficit.
E)Lower the exchange rate.

Question

Quizplus · Accepted Answer

By raising the overnight loans rate, the Bank of Canada will make it more expensive for banks to borrow money, which will reduce the amount of money that banks can lend out. This will cause a decrease in aggregate demand and help to eliminate the inflationary gap.

If the Bank of Canada Wants to Eliminate an Inflationary