If a reduction in the money supply were desired to slow inflation,what action might the Bank of Canada take?
A)decrease the bank rate
B)raise the bank rate
C)lower tax rates
D)buy government bonds on the open market

Question

Quizplus · Accepted Answer

If the Bank of Canada wanted to reduce the money supply to slow inflation, they could raise the bank rate. This would encourage commercial banks to increase their interest rates on loans and mortgages, which would in turn discourage borrowing and spending. This would reduce the overall demand for goods and services, which would lead to a decrease in prices and slow inflation. Decreasing the bank rate would have the opposite effect and increase the money supply, which would likely lead to higher inflation. Lowering tax rates and buying government bonds on the open market would not directly affect the money supply.

If a Reduction in the Money Supply Were Desired to Slow