Suppose the Bank of Canada Were to Implement an Expansionary

question 58

Multiple Choice

Suppose the Bank of Canada were to implement an expansionary monetary policy by buying government securities on the open market, thereby increasing cash reserves in the banking system. If the commercial banks do not expand their lending in response, then
1) there would be no change in the money supply at all;
2) the Bank of Canada could force the commercial banks to expand their lending, based on regulations in the Bank Act;
3) the increase in the overall money supply would be smaller than the Bank of Canada may have intended.

• A) 1 only
• B) 2 only
• C) 3 only
• D) 1 or 2
• E) 2 or 3

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