One Reason That the Bank of Canada Does Not Try

question 61

Multiple Choice

One reason that the Bank of Canada does not try to influence the money supply directly is that

• A)the Bank of Canada has many other policy tools with which it can influence aggregate demand.
• B)the Bank of Canada does not have the mandate to change the money supply.
• C)because the money demand curve is almost horizontal,changes in the money supply would have little or no effect on the interest rate.
• D)because the investment demand curve is almost vertical,any change in the interest rate resulting from a change in money supply would have little or no effect on desired investment expenditure.
• E)the slope of the money demand curve is not precisely known,and so the effect on the interest rate of a change in money supply is uncertain.

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Definitions:

Production Possibilities Curve

A graphical representation showing the maximum number of goods or services that can be produced with fixed resources and technology.

Research And Development

Activities directed towards innovation, introduction of new products or improvements in existing products or processes.

Opportunity Cost

The cost of forgoing the next best alternative when making a decision, representing the benefits that could have been gained by choosing the alternative option.

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A service that allows consumers to borrow video games for a limited period of time for a fee.