Using the money demand and money supply model, an open market purchase of government of Canada securities by the Bank of Canada would cause the equilibrium interest rate to
A)increase.
B)decrease.
C)not change.
D)increase if the economy is in a recession.

Question

Quizplus · Accepted Answer

An open market purchase of government securities increases the money supply, shifting the money supply curve to the right. This causes the equilibrium interest rate to decrease as there is more money available in the market and lenders are competing to lend their money, lowering the interest rate.

Using the Money Demand and Money Supply Model, an Open