Suppose the Bank of Canada Pursues a Policy That Leads

question 138

Multiple Choice

Suppose the Bank of Canada pursues a policy that leads to higher interest rates in Canada.How will this policy affect real GDP in the short run given that Canada is an open economy? This policy

• A)reduces investment spending, consumption spending and net exports, all of which reduce GDP.
• B)reduces investment spending and consumption spending, both of which reduce GDP.Net exports rise, which increases GDP.
• C)reduces investment spending and consumption spending, both of which reduce GDP.Net exports fall, which increases GDP.
• D)increases investment spending, consumption spending, and net exports, all of which increase GDP.
• E)reduces investment spending and net exports, both of which raise GDP. Consumption spending rises, which increases GDP.

---

Definitions:

Net Exposure Basis

A method of measuring risk that combines both the gross positive and negative positions to determine an entity's overall exposure.

Equity Instrument

A type of financial security that signifies ownership in a company and represents a claim on part of the company's assets and earnings, such as stocks.

Market Participant

An entity or individual with the willingness and ability to buy, sell, or otherwise engage in transactions in a market.

Risk Aversion

The reluctance or avoidance of undertaking investment with uncertain outcomes, preferring outcomes that are more predictable.