Assume the unemployment rate is rising and price levels are falling.The Bank of Canada would be mostly likely to engage in
A)purchase and resale agreements.
B)sale and repurchase agreements.
C)contractionary fiscal policy.
D)rising banks' reserve ratios.

Question

Quizplus · Accepted Answer

Purchase and resale agreements, also known as open market operations, involve the central bank buying government securities from commercial banks, which increases their reserves and allows them to lend more. This increases the money supply in the economy and can help to stimulate economic growth and reduce unemployment. The Bank of Canada may use this tool to combat rising unemployment and deflationary pressures in the economy. Sale and repurchase agreements, on the other hand, involve the central bank selling securities and then buying them back at a later date, which reduces the money supply and can contribute to deflationary pressures. Contractionary fiscal policy, such as reducing government spending or increasing taxes, would also contribute to deflationary pressures and could potentially exacerbate the problem. Finally, raising banks' reserve ratios would decrease the amount of money that banks could lend out, which would also be contractionary and exacerbate deflationary pressures.

Assume the Unemployment Rate Is Rising and Price Levels Are