Your Roommate Is Having Trouble Grasping How Monetary Policy Works

question 53

Multiple Choice

Your roommate is having trouble grasping how monetary policy works.Which of the following explanations could you use to correctly describe the mechanism by which the Bank of Canada can affect the economy through monetary policy? Increasing the money supply

• A)lowers the interest rate, and firms increase investment spending.
• B)causes people to spend more because they know prices will rise in the future.
• C)raises the interest rate and consumers decrease spending on durable goods.
• D)lowers the interest rate, raises the value of the dollar, lowers the prices of exports, and raises net exports.
• E)Increasing the money supply reduces the cost of the government to borrow allowing the government to engage in more expansionary fiscal policy.

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Definitions:

Journalizing

The process of recording business transactions in the journal of accounting as part of the double-entry bookkeeping system.

Simple Entry

A journal entry that involves only two accounts.

Chart of Accounts

An organized list of all the accounts in a company’s general ledger used for recording financial transactions.

Asset Accounts

Accounts on the balance sheet representing valuable resources owned by the company expected to provide future benefits.