If the Bank of Canada Chooses to Prevent Any Change

question 36

Multiple Choice

If the Bank of Canada chooses to prevent any change in the exchange rate when government spending increases, what is most likely to happen?

• A) crowding-out effects
• B) no crowding-out effects
• C) no increase in the demand for goods and services
• D) a decrease in aggregate demand

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Definitions:

Gross Investment

The total amount of investment in capital goods in an economy over a specific period, not accounting for depreciation.

Depreciation

A reduction in the value of an asset over time due to wear and tear or obsolescence.

Net Investment

The net expenditure on acquiring new capital assets after deducting the depreciation of the present capital assets.

Limited Liability

A legal structure that limits the financial liability of an individual in a business to their investment in the company, protecting personal assets from business debts and obligations.