Suppose the Bank of Canada Lowers Its Target for the Overnight

question 51

Multiple Choice

Suppose the Bank of Canada lowers its target for the overnight interest rate and longer-term interest rates in the market fall as a result.When this occurs,the commercial banks respond to

• A)an increase in the demand for loans by buying government securities from the Bank of Canada,against which they can extend new loans.
• B)an increase in the demand for loans by selling government securities to the Bank of Canada in exchange for cash,with which they can extend new loans.
• C)a decrease in the demand for loans by selling government securities to the Bank of Canada and calling in existing loans.
• D)a decrease in the demand for loans by buying government securities from the Bank of Canada in exchange for cash,and calling in existing loans.
• E)an increase in the demand for loans by borrowing cash from the Bank of Canada with which they can extend new loans.

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Definitions:

Risky Driving

Driving behavior that increases the likelihood of an accident or harm, such as speeding, driving under the influence of alcohol or drugs, or not obeying traffic signals.

Safe Drivers

Individuals who exhibit behaviors and practices that significantly reduce the likelihood of being involved in accidents or receiving traffic citations.

Information Asymmetry

A situation where one party in a transaction has more or superior information compared to another. This can cause market inefficiencies and power imbalances.

Moral Hazard

The situation where one party is more likely to take risks because another party bears the consequences.