If the Bank of Canada Announces That Its Target for the Overnight

question 252

Multiple Choice

If the Bank of Canada announces that its target for the overnight interest rate is falling from 3 percent to 2.25 percent, how would you expect workers and firms to react?

• A)As long as the Bank of Canada's announcement is credible, workers and firms will decrease their consumption and investment spending, which will decrease aggregate demand and inflation.
• B)As long as the Bank of Canada's announcement is credible, workers and firms will increase their consumption and investment spending, which will increase aggregate demand and inflation.
• C)If the Bank of Canada's announcement is not credible, workers and firms will not expect inflation to rise so they will increase their consumption and investment spending, which will decrease aggregate demand and increase inflation.
• D)Workers and firms will incorporate the decrease in interest rates into their expectations of inflation, and they will expect inflation to fall as a result of Bank of Canada's policy announcement.
• E)Workers and firms will reduce their consumption and investment spending in expectation of higher interest rates in the future.

---

Definitions:

Cystic Fibrosis

A genetic disorder that affects the lungs and digestive system, characterized by thick, sticky mucus production.

Thoracic Trauma

Injury to the chest area, which can affect the lungs, heart, and other components within the thoracic cavity.

Postural Drainage

A technique that uses gravity to assist in the drainage of mucus from the lungs and airways, often involving positioning the body in various ways.

Tube Feedings

A medical method to provide nutrition directly to the stomach or intestine through a tube, used when patients cannot eat by mouth.