In: Economics
When the inflation rate is 4 percent, the Bank of Canada will
A) buy bonds to lower interest rates and increase aggregate demand.
B) sell bonds to raise interest rates and decrease aggregate demand.
C) do nothing, since an interest rate of 4 percent is desirable.
D) sell bonds to lower interest rates and accelerate the economy.
E) buy bonds to raise interest rates and slow down the economy.
When the Bank of Canada buys bonds from a chartered bank, chartered bank reserves
A) decrease and chartered banks make additional loans.
B) increase and chartered banks reduce loans.
C) decrease and chartered banks reduce loans.
D) decrease and interest rates fall.
E) increase and chartered banks make additional loans.
If Canadian interest rates rise, the value of the Canadian dollar ________ and net exports ________.
A) appreciates; increase
B) appreciates; decrease
C) depreciates; increase
D) depreciates; decrease
E) appreciates only if U.S. interest rates also fall; decrease
Ans .
When the inflation rate is 4 percent, the Bank of Canada will , B)
sell bonds to raise interest rates and decrease aggregate
demand.
4% inflation is very high which means the economy is overheating.
Central bank will adopt the contractionary monetary policy and Sale
the bonds to reduce the money supply from the market and reduce the
aggregate demand.
Ans .
When the Bank of Canada buys bonds from a chartered bank, chartered
bank reserves E) increase and chartered banks make additional
loans.
Buying the bonds means increasing the money supply in the banks and
banks in trun will issue more loans and the money supply will
increase in the economy. This is form of expansionary monetary
policy.
An.s
If Canadian interest rates rise, the value of the Canadian dollar
________ and net exports ________
B) appreciates; decrease
When the interest rate increase , there will be more people
interested to invest in Canada and this will cause high demand for
Canadian dollar and Canadian dolar witll appreciate. When the
currency appreciates , the net exports will decrease.