Use the figure below to answer the following questions.

Figure 30.3.1
-Refer to Figure 30.3.1. Everything else remaining the same, which graph best illustrates the effect of the Bank of Canada lowering the overnight loans rate?
A)(a)only
B)(b)only
C)(c)only
D)(d)only
E)Both (a)and (c)

Question

Use the figure below to answer the following questions.
  
Figure 30.3.1
-Refer to Figure 30.3.1. Everything else remaining the same, which graph best illustrates the effect of the Bank of Canada lowering the overnight loans rate?
A)(a)only 
B)(b)only 
C)(c)only 
D)(d)only 
E)Both (a)and (c)

Quizplus · Accepted Answer

Lowering the overnight loans rate increases the money supply in the economy, which in turn lowers the interest rate. The graph (c) shows a shift to the right of the LM curve, resulting in a lower interest rate at the same level of income. This lower interest rate encourages greater investment and consumption, which leads to an increase in aggregate demand and output. The other graphs do not show a shift in the LM curve and therefore do not illustrate the effect of a lower interest rate.

Use the Figure Below to Answer the Following Questions