When the Bank of Canada lowers the growth rate of the money supply, which of the following must it take into account?

Question

Quizplus · Accepted Answer

When the Bank of Canada lowers the growth rate of the money supply, it must take into account both the long-run effect on inflation as well as the short-run effect on production. In the short run, a decrease in the money supply growth rate is likely to lead to an increase in interest rates, which can put downward pressure on production. However, in the long run, a lower growth rate of the money supply can help to lower inflation. Therefore, the Bank of Canada must balance both of these effects when making policy decisions.

When the Bank of Canada Lowers the Growth Rate of the Money