When the Bank of Canada has an interest rate target, ________ output might lead to a ________ money supply.
A) higher; higher
B) higher; lower
C) higher; stable
D) lower; lower

Question

Quizplus · Accepted Answer

When the Bank of Canada (or any central bank) targets an interest rate and output is higher, it might lead to a higher money supply. This is because the central bank may increase the money supply to maintain its interest rate target in the face of increased demand for money that accompanies higher output.

When the Bank of Canada Has an Interest Rate Target