Suppose the Actual Overnight Interest Rate Is 3

question 7

Multiple Choice

Suppose the actual overnight interest rate is 3.5%.If the Bank of Canada raises its target for the overnight interest rate to 4%,and longer-term interest rates in the market rise as a result,

• A)the demand for loans from commercial banks falls,the commercial banks sell government securities to the Bank of Canada,and the money supply falls.
• B)the demand for loans from commercial banks rises,the commercial banks buy government securities from the Bank of Canada,and the money supply falls.
• C)the demand for loans from commercial banks rises,the commercial banks sell government securities to the Bank of Canada,and the money supply rises.
• D)the demand for loans from commercial banks falls,the commercial banks buy government securities from the Bank of Canada,and the money supply falls.
• E)the demand for loans from commercial banks rises the commercial banks buy government securities from the Bank of Canada,and the money supply rises.

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Definitions:

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