When the Bank of Canada cuts its key policy rate,it sends a signal to financial intermediaries that it wants them to
A) raise their short-term interest rates.
B) lower their short-term interest rates.
C) raise the money supply.
D) lower the money supply.
E) lower their long-term interest rates.

Question

Quizplus · Accepted Answer

When the Bank of Canada cuts its key policy rate, it is trying to stimulate borrowing and spending in the economy. Lowering the key policy rate makes it cheaper for financial intermediaries to borrow money, which they can then lend to consumers at lower interest rates, encouraging them to spend more. Therefore, the Bank of Canada wants financial intermediaries to lower their short-term interest rates so that borrowing and spending increase.

When the Bank of Canada Cuts Its Key Policy Rate,it