When the Bank of Canada fights inflation by implementing an open market operation, the supply of reserves curve shifts ________ and the supply of money curve shifts ________.
A)leftward; leftward
B)leftward; rightward
C)rightward; leftward
D)rightward; rightward
E)none of the above

Question

Quizplus · Accepted Answer

When the Bank of Canada implements an open market operation to fight inflation, it typically sells government securities in the open market, which decreases the amount of reserves held by banks. This decrease in reserves shifts the supply of reserves curve leftward. As a result, banks have less money to lend out, which restricts the supply of money in the economy and shifts the supply of money curve leftward. Therefore, the correct answer is A, which describes a leftward shift in both the supply of reserves and the supply of money curves.

When the Bank of Canada Fights Inflation by Implementing an Open