The diagrams below illustrate two alternative approaches to implementing monetary policy. The economy begins in monetary equilibrium with the interest rate equal to 2% and the money supply equal to Mº Interest Rate 3% 2% MI MO MD (P.Y) Quantity of Money part (1)-targeting the interest rate Interest Rate 2% FIGURE 28-1 MI MO MDP.Y) Quantity of Money part (-targeting the money supply Refer to Figure 28-1. If the Bank of Canada raises the target interest rate to 3%, as shown in part (i), then it must accommodate the resulting_ in quantity of money demanded by in financial markets. Oa) decrease; selling government securities Ob) decrease; buying government securities Oc) increase; selling government securities d) increase; buying government securities
The diagrams below illustrate two alternative approaches to implementing monetary policy. The economy begins in monetary equilibrium with the interest rate equal to 2% and the money supply equal to Mº Interest Rate 3% 2% MI MO MD (P.Y) Quantity of Money part (1)-targeting the interest rate Interest Rate 2% FIGURE 28-1 MI MO MDP.Y) Quantity of Money part (-targeting the money supply Refer to Figure 28-1. If the Bank of Canada raises the target interest rate to 3%, as shown in part (i), then it must accommodate the resulting_ in quantity of money demanded by in financial markets. Oa) decrease; selling government securities Ob) decrease; buying government securities Oc) increase; selling government securities d) increase; buying government securities
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:The diagrams below illustrate two alternative approaches to implementing monetary
policy. The economy begins in monetary equilibrium with the interest rate equal to
2% and the money supply equal to Mº
Interest Rate
3%
2%
MI MO
MD(P.Y)
Quantity of Money
part (1)-targeting the interest rate
Interest Rate
2%
FIGURE 28-1
MI MO
MDP.Y)
Quantity of Money
part -targeting the money supply
Refer to Figure 28-1. If the Bank of Canada raises the target interest rate to 3%, as
shown in part (i), then it must accommodate the resulting___ in quantity of
money demanded by
in financial markets.
Oa) decrease; selling government securities
Ob) decrease; buying government securities
Oc) increase; selling government securities
d) increase; buying government securities
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