In an open market operation aimed at increasing expenditure, the Bank of Canada
A)sells government bonds, decreasing bank reserves, decreasing lending, decreasing the overnight rate.
B)sells government bonds, decreasing bank reserves, decreasing lending, increasing the overnight rate.
C)sells government bonds, decreasing bank reserves, increasing lending, increasing the overnight rate.
D)buys government bonds, increasing bank reserves, increasing lending, decreasing the overnight rate.
E)buys government bonds, increasing bank reserves, increasing lending, increasing the overnight rate.

Question

Quizplus · Accepted Answer

In an open market operation aimed at increasing expenditure, the Bank of Canada buys government bonds, increasing banks' reserves. This increases the amount of money banks have available for lending, which in turn can increase expenditure. The increased availability of credit also means that the interest rate for overnight loans (the overnight rate) decreases, making borrowing more attractive.

In an Open Market Operation Aimed at Increasing Expenditure, the Bank