Why is the money supply curve almost perfectly inelastic?
A)As interest rates rise, people will want to be supplied with more loans.
B)The Bank of Canada makes more money available in response to higher interest rates.
C)The Bank of Canada lowers the bank rate as interest rates rise so that more money is injected in the banking system.
D)Banks generally find loans more profitable than keeping their assets as cash in their vaults or reserve deposits at the Bank of Canada

Question

Quizplus · Accepted Answer

Banks generally prefer to lend out money rather than holding it as cash or as reserve deposits at the Bank of Canada because lending generates more profits for them. Therefore, the money supply curve is almost perfectly inelastic because banks do not significantly change their lending practices in response to changes in interest rates.

Why Is the Money Supply Curve Almost Perfectly Inelastic