Suppose the Bank of Canada increases the money supply.How will the interest rate and the quantity of money demanded be affected?

Question

Quizplus · Accepted Answer

When the Bank of Canada increases the money supply, it lowers the overnight rate, which in turn affects other interest rates. Lower interest rates lead to increased borrowing and spending, which increases the quantity of money demanded. Therefore, both the interest rate and the quantity of money demanded will be affected, but in opposite directions. The interest rate will decline, and the quantity of money demanded will increase.

Suppose the Bank of Canada Increases the Money Supply