If the Bank of Canada wants to decrease the money supply, it can ________; if it wants to increase the money supply, it can ________.

Question

Quizplus · Accepted Answer

When the Bank of Canada sells government securities, it decreases the money supply because it removes money from the economy. Conversely, when it buys government securities, it increases the money supply because it injects money into the economy. Therefore, option A is correct. The other options are incorrect because raising the bank rate (option B) and increasing the value of the Canadian dollar (option C) are methods that the central bank can use to control inflation, but they do not directly affect the money supply. Lowering the bank rate (option D) can increase the money supply, but selling government securities (option A) is a more direct method. Option E is incorrect because buying and selling government securities cannot both increase and decrease the money supply at the same time.

If the Bank of Canada Wants to Decrease the Money