Suppose the Actual Overnight Interest Rate Is 3

question 80

Multiple Choice

Suppose the actual overnight interest rate is 3.5 percent. If the Bank of Canada raises its target for the overnight interest rate to 4 percent, 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 rises the commercial banks buy government securities from the Bank of Canada, and the money supply rises.
• E)the demand for loans from commercial banks falls, the commercial banks buy government securities from the Bank of Canada, and the money supply falls.

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