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1)An open market sale of government securities by the Bank of Canada shifts the reserves curve Select one: A
1)An open market sale of government securities by the Bank of Canada shifts the reserves curve Select one: A. demand for, leftward O B. demand for, rightward O C. supply of, rightward O D. supply of, leftward
2)RS 10 8 Interest rate (percent per year! 6 2 RD 0 100 200 300 400 500 600 Reserves on deposit at the Fed (billions of dollars) The figure above shows the market for bank reserves. If the central bank undertakes an open market purchase of government securities that changes the quantity of reserves by $100 billion, then the overnight loans rate will Select one O A. rise to 8 percent a year B. remain at 6 percent a year OC fail to 4 percent a year O D. None of these answers is correct
Expert Solution
1)
D) Supply of , leftward
An open market sale of government securities by the bank of Canada shift the supply of reserve curve leftward.an open market operation is an activity by a central bank to give liquidity in it's currency to bank or a groups of banks.
2)
The correct answer for this question is option C) fall to 4? per year.
If in case a reserve bank purchases an open market securities then it will increase money supply in the economy which will reduce the loan interest rates. Here when the government purchases a $100 billion open market securities then it will reduce the loan rates because of their purchase.
Option D) cannot be right because of the option none of the above
Option A) cannot be right because there cannot be any rise in the loan rates because of the open market purchases.
Option B) cannot be right because there will be an effect in the economy due to an open market purchase. So it cannot remain static.
So option C) is the best as well as the correct option for this question as an answer.
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