If the Bank of Canada's policy is contractionary, it will
A)use open market operations to buy Canada bonds.
B)use open market operations to sell Canada bonds.
C)lower the overnight interest rate.
D)lower the reserve requirement.
E)increase its lending to commercial banks.

Question

Quizplus · Accepted Answer

A contractionary policy means the central bank wants to reduce the money supply and increase interest rates. Selling bonds through open market operations removes money from circulation, reducing the money supply and increasing interest rates. Therefore, if the Bank of Canada's policy is contractionary, it will use open market operations to sell Canada bonds.

If the Bank of Canada's Policy Is Contractionary, It Will