Fluctuations in the demand for reserves cause the Bank of Canada to lose control over a monetary aggregate if the Bank of Canada targets ________.
A) a monetary aggregate
B) the monetary base
C) an interest rate
D) nominal GDP

Question

Quizplus · Accepted Answer

If the Bank of Canada targets an interest rate, it will adjust the supply of reserves to keep the interest rate at the desired level. However, fluctuations in the demand for reserves could cause a shift in the money supply, which would then impact other monetary aggregates. Therefore, if the Bank of Canada targets a monetary aggregate or nominal GDP, fluctuations in the demand for reserves would not necessarily cause the Bank of Canada to lose control over the targeted variable, but if the Bank of Canada targets the monetary base, fluctuations in the demand for reserves would also cause the Bank of Canada to lose control over the monetary aggregate.

Fluctuations in the Demand for Reserves Cause the Bank of Canada