If the Bank of Canada fears inflation it will undertake an open market ________ of securities, the overnight loans rate will ________ and the long-term real interest rate will ________.
A)sale; rise; fall
B)sale; rise; rise
C)purchase; rise; fall
D)purchase; fall; rise
E)sale; fall; fall

Question

Quizplus · Accepted Answer

When the Bank of Canada fears inflation, it will sell securities in the open market, which decreases the money supply, causing the overnight loans rate to rise. This increase in short-term rates typically leads to an increase in long-term real interest rates as well.

If the Bank of Canada Fears Inflation It Will Undertake