Suppose that the Bank of Canada sells Treasury bills.We can expect this transaction to _____ the money supply,_____ Treasury bill prices,and _____ interest rates.

Question

Quizplus · Accepted Answer

When the Bank of Canada sells Treasury bills, it reduces the money supply since it is taking money out of circulation. This reduces the demand for Treasury bills, causing their prices to decrease. As bond prices decrease, yields increase, causing interest rates to rise. Therefore, the correct answer is D: reduce the money supply, reduce Treasury bill prices, and raise interest rates.

Suppose That the Bank of Canada Sells Treasury Bills