To stimulate the economy, the Bank of Canada can do which of the following?

Question

Quizplus · Accepted Answer

When the Bank of Canada buys government securities, it injects money into the economy and increases the money supply, which can stimulate economic growth by lowering interest rates and making it easier for consumers and businesses to borrow money. By buying government securities, the Bank of Canada also increases demand for these securities, which raises their prices and lowers their yields, further pushing down interest rates. This is called quantitative easing and is a common tool used by central banks to stimulate the economy in times of recession. Lowering the reserve requirement (A) can also increase the money supply, but it is a less direct and less powerful tool. Raising the prime rate (B) would have the opposite effect and would likely slow down economic growth. Selling government bonds on the open market (C), like raising the prime rate, would have a contractionary effect on the economy.

To Stimulate the Economy, the Bank of Canada Can Do