Suppose that currently the overnight loans rate is 4%, with the Bank of Canada's target range 4 to 4.25%. If the Bank reduces the target to 3.5 to 3.75%, which of the following helps explain why the actual rate will fall towards the new range? Select one: O a. Because institutions can now earn 3.75% from the Bank of Canada, they will not borrow from other institutions at 4%. O b. Because institutions can now borrow from the Bank of Canada at 3.75%, they will not borrow from thor banks at 4%.
Suppose that currently the overnight loans rate is 4%, with the Bank of Canada's target range 4 to 4.25%. If the Bank reduces the target to 3.5 to 3.75%, which of the following helps explain why the actual rate will fall towards the new range? Select one: O a. Because institutions can now earn 3.75% from the Bank of Canada, they will not borrow from other institutions at 4%. O b. Because institutions can now borrow from the Bank of Canada at 3.75%, they will not borrow from thor banks at 4%.
Macroeconomics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN:9781305506756
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Chapter13: Money And The Banking System
Section: Chapter Questions
Problem 17CQ
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Transcribed Image Text:Suppose that currently the overnight loans rate is 4%, with the Bank of Canada's target range 4 to 4.25%. If the
Bank reduces the target to 3.5 to 3.75%, which of the following helps explain why the actual rate will fall
towards the new range?
Select one:
O a. Because institutions can now earn 3.75% from the Bank of Canada, they will not borrow from other
institutions at 4%.
O b. Because institutions can now borrow from the Bank of Canada at 3.75%, they will not borrow from
other banks at 4%.
O c.
O d.
Legally, the overnight rate must be within the Bank of Canada's target range.
Because institutions can now earn 3.75% from the Bank of Canada, lending to other banks at 4%
unattractive.
Oe. Because institutions can now borrow from the Bank of Canada at 3.5%, they will not borrow fr
other banks at 4%.
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