Suppose the Bank of Canada increases the money supply.Which of the following is true?

Question

Quizplus · Accepted Answer

If the Bank of Canada increases the money supply, then at the original interest rate, the quantity of money supplied exceeds the quantity of money demanded. This creates a surplus of money in the market, which people will try to get rid of by lending it out, buying bonds or other assets, or spending it on goods and services. As people do so, the demand for loanable funds will increase, pushing up the interest rate until the market reaches a new equilibrium. Therefore, the correct option is B.

Suppose the Bank of Canada Increases the Money Supply