If the Bank of Canada buys bonds, what are the effects on money supply, interest rates, and the quantity of money demanded?
A) The money supply increases, the interest rate falls, and the quantity of money demanded increases.
B) The money supply falls, the interest rate falls, and the quantity of money demanded increases.
C) The money supply increases, the interest rate increases, and the quantity of money demanded increases.
D) The money supply falls, the interest rate increases, and the quantity of money demanded falls.

Question

If the Bank of Canada buys bonds, what are the effects on money supply, interest rates, and the quantity of money demanded?  
A) The money supply increases, the interest rate falls, and the quantity of money demanded increases. 
B) The money supply falls, the interest rate falls, and the quantity of money demanded increases. 
C) The money supply increases, the interest rate increases, and the quantity of money demanded increases. 
D) The money supply falls, the interest rate increases, and the quantity of money demanded falls.

Quizplus · Accepted Answer

When the Bank of Canada buys bonds, it injects money into the economy, increasing the money supply. As a result, the interest rates fall due to the surplus money available in the market. Lower interest rates would encourage borrowing and increase the quantity of money demanded. Therefore, A is the correct answer.

If the Bank of Canada Buys Bonds, What Are the Effects