What will the combination of an increase in the bank rate and an open market sale of government securities by the Bank of Canada tend to result in?
A)higher bond prices
B)a higher loan volume issued by the chartered banking system
C)a lower price level
D)a decrease in unemployment rates

Question

Quizplus · Accepted Answer

An increase in the bank rate means it becomes more expensive for banks to borrow money from the central bank, which results in the banks increasing interest rates on loans. This decreases demand for loans, leading to a decrease in the money supply and a lower price level. An open market sale of government securities also decreases the money supply and increases the interest rate. Together, these actions would result in a lower price level.

What Will the Combination of an Increase in the Bank