Which of the following is NOT consistent with the effects on the economy of a decrease in the overnight rate target by the Bank of Canada?
A) Market interest rates decrease.
B) Real interest rates decrease.
C) The Canadian dollar depreciates.
D) The growth of spending on domestic goods increases.
E) Output decreases.

Question

Quizplus · Accepted Answer

A decrease in the overnight rate target by the Bank of Canada is aimed at stimulating economic activity through increased borrowing and spending. As a result, market interest rates and real interest rates will decrease, making borrowing and spending cheaper, and the Canadian dollar may depreciate due to lower demand for Canadian assets. An increase in spending on domestic goods is also expected. However, output should increase rather than decrease, as the economy becomes more active with increased spending and borrowing. Therefore, the option that is inconsistent with the effects of a decrease in the overnight rate target is E - output decreases.

Which of the Following Is NOT Consistent with the Effects