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:

Managerial Contracts

Agreements outlining the terms and responsibilities between managers and the entity they manage, often including performance criteria, duties, and compensation.

Professional Judgement

The application of knowledge, expertise, and experience to make informed decisions within the context of professional practices.

Net Realisable Value

The estimated selling price of an asset in the ordinary course of business minus any costs associated with its sale or disposal.

Fair Value

A market-based measurement that represents the price at which an asset could be exchanged or a liability settled between knowledgeable, willing parties in an arm's length transaction.