Question

20. An increase in the Bank rate will result in A. an increase in the money supply. B. a decrease in the monetary base. C. an increase in the monetary base. D. no change in the monetary base. E. a depreciation of the Canadian dollar. 21. Among the numerous policies, the Bank of Canada has adopted to mitigate the impact of the Covid-19 outbreak; it has decided to "widen the collateral they accept to provide lending, and expanding the list of eligible institutions that can access their lending facilities." Widening the collateral that financial institutions can pledge will help A. financial institutions sell their assets at a higher price. B. financial institutions lend money to the Government of Canada more easily. C. financial institutions lend money to households and firms more easily. D. financial institutions obtain credit more easily. E. financial institutions buy Canadian dollars more easily. F. increase 22. If the Government of Canada needs to increase its deficit even further in the next coming months to fight the Covid-19 outbreak and decides to issue new government bonds. If the Bank of Canada decides to buy all the new government bonds from the Government of Canada. This amounts to __and will lead to A. higher bond prices; higher money supply. B. higher bond prices; higher interest rates. C. monetizing the deficit; higher money supply. D. monetizing the deficit; lower money supply. E. lower bond prices; lower money supply.

Answer 1

20. B. a decrease in the monetary base.
Monetary base is a measure of money supply, which includes the total amount of currency that is either with the public or in banks as deposits. An increase in the Bank rate leads to a decrease in the money supply, hence a decrease in the monetary base, as it becomes costly for individuals to hold cash, and it becomes costly for banks to lend.  

21. D. financial institutions obtain credit more easily.
Bank of Canada has decided to widen the collateral they accept to provide lending. The Bank lends credit to financial institutions, and during this global pandemic of coronavirus, lending credit is the need of the hour to stimulate growth and demand.

22. C. monetizing the defict; higehr money supply.
When the government issues bonds and the central bank purchases the bonds, the government's deficit increases and is monetized by the value of the bonds. Buying of bonds by the central bank also leads to an increase in the money supply.