When attempting to decrease the overnight rate,the Bank of Canada can
A) increase reserve requirements.
B) engage in an open market purchase.
C) increase the discount rate.
D) raise the interest rate paid on bank reserves.

Question

Quizplus · Accepted Answer

When the Bank of Canada engages in an open market purchase, it is essentially injecting money into the economy. This increase in the money supply leads to a decrease in the overnight rate as it becomes cheaper for banks to lend to each other. Increasing reserve requirements and the discount rate constrict the money supply and would likely increase interest rates, while raising the interest rate paid on bank reserves would encourage banks to hold onto their reserves rather than lend them out, also resulting in higher interest rates.

When Attempting to Decrease the Overnight Rate,the Bank of Canada