If the Rate of Inflation Is Expected to Fall Below

question 30

Multiple Choice

If the rate of inflation is expected to fall below the target range of 1 to 3 percent, the Bank of Canada will

• A)increase the target for the overnight interest rate.
• B)decrease the exchange rate for the Canadian dollar.
• C)increase their demand for Canadian dollars.
• D)decrease the target for the overnight interest rate.
• E)engage in sale and repurchase agreements with commercial banks.

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Definitions:

Interest Rates

The cost of borrowing money, expressed as a percentage of the amount borrowed, charged by lenders to borrowers for the use of their money.

Optimal Choice

The most efficient and effective decision or selection made from among various alternatives, based on the criteria of maximizing utility or benefit.

Budget Constraint

The restriction on the assortment of goods and services a consumer is able to purchase, determined by their income and the costs of those items.

Interest Rate on Savings

The percentage yield paid by financial institutions to deposit account holders on the balances in their savings accounts.