Which of the following would tend to reduce the price level?
A)a chartered bank using excess reserves to extend a loan to a customer
B)an decrease in the bank rate
C)a chartered bank purchasing government securities from an individual as an investment
D)the bank of Canada selling bonds on the open market

Question

Quizplus · Accepted Answer

When the Bank of Canada sells bonds on the open market, there is a decrease in the money supply because the individuals or institutions buying the bonds pay for them with cash. As a result, there is less money in circulation, which tends to reduce the price level. Choices A and C would both increase the money supply, which would tend to increase the price level. Choice B can have an ambiguous effect, as a decrease in the bank rate can encourage increased borrowing and spending, leading to inflationary pressures.

Which of the Following Would Tend to Reduce the Price