Question
Suppose the Bank of Canada buys Euros from some major commercial Canadian banks in order to support the
Canadian dollar.
a What 1s the immediate and the long-term impact of this operation on the Money Supply
Answer
The immediate impact of this operation on the Money Supply is an increase in the money supply, as the Bank of Canada is injecting new money into the economy. The long-term impact is uncertain, as it depends on how the money is used by the commercial banks and how it affects the overall economy.