Suppose the Bank of Canada wants to stimulate the economy.Which of the following strategies might the Bank use?

Question

Quizplus · Accepted Answer

Lowering the bank rate is a common strategy used by central banks to increase the money supply and stimulate the economy. When the bank rate is lowered, interest rates on loans and mortgages decrease, making borrowing more attractive, leading to an increase in spending and investment. This, in turn, spurs economic growth, employment, and inflation. Buying or selling bonds is a strategy used to influence the money supply and inflation, but it does not directly stimulate the economy. Raising the bank rate would hurt the economy by making borrowing more expensive, leading to a decrease in spending and investment.

Suppose the Bank of Canada Wants to Stimulate the Economy