Assume that the Bank of Canada's policy is to stabilize the interest rate.If the economy begins to expand,the Bank of Canada:
A)would have to increase the money supply to keep the interest rate from falling
B)would have to decrease the money supply to keep the interest rate from rising
C)would have to increase the money supply to keep the interest rate from rising
D)can keep the interest rate stable without altering the money supply
E)will have to accept a lower interest rate if it does not alter the money supply

Question

Quizplus · Accepted Answer

When the economy expands, demand for money increases, which puts upward pressure on interest rates. To stabilize the interest rate and prevent it from rising, the Bank of Canada would need to increase the money supply to meet the higher demand.

Assume That the Bank of Canada's Policy Is to Stabilize