Suppose money demand increases and the Bank of Canada attempts to keep interest rates stable.What will be the effect on money supply?
A) The money supply will increase.
B) The money supply will decrease.
C) The money supply will stay the same.
D) The money supply will first increase, and then decrease.

Question

Suppose money demand increases and the Bank of Canada attempts to keep interest rates stable.What will be the effect on money supply?  
A) The money supply will increase. 
B) The money supply will decrease. 
C) The money supply will stay the same. 
D) The money supply will first increase, and then decrease.

Quizplus · Accepted Answer

To keep interest rates stable when money demand increases, the Bank of Canada would increase the money supply to meet the higher demand without changing the interest rate.

Suppose Money Demand Increases and the Bank of Canada Attempts