Question

In: Economics

1.When the Bank of Canada increases the overnight rate, it: a.increases the reserve to deposit ratio...

1.When the Bank of Canada increases the overnight rate, it:

a.increases the reserve to deposit ratio (rr).

b.is likely to decrease the monetary base (B).

c.decreases the reserve to deposit ratio (rr).

d.is likely to increase the monetary base (B).

2.The concept of monetary neutrality in the classical model means that an increase in the money supply growth rate will increase:

a.real interest rates.

b.real GDP.

c.both saving and investment by the same amount.

d.nominal interest rates.

Solutions

Expert Solution

1. b.is likely to decrease the monetary base (B).

Increase in overnight rate makes banks to increase the interest rate charges to customers. This results in decrease in money supply

2. d. Nominal interest rate

Change in money supply only affects nominal variables in the long run

Rahul Sunny answered 2 years ago
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