Which of the following situations illustrates how monetary policy can influence aggregate demand?
A)The Bank of Canada raises interest rates so people plan to buy less consumer durables.As a result, the aggregate demand curve shifts leftward.
B)Investors, anticipating an erosion of financial wealth due to inflation, decide to save more.As a result, aggregate demand decreases.
C)The government reduces the goods and services tax.As a result, consumption expenditure increases and aggregate demand increases.
D)The exchange rate value of the Canadian dollar rises.As a result, people living near the U.S.-Canada border increase their imports of goods and net exports decrease.
E)Both A and D are examples of monetary policy.

Question

Quizplus · Accepted Answer

The Bank of Canada changing interest rates is a key tool of monetary policy. When interest rates are raised, borrowing becomes more expensive, which usually reduces consumer spending and business investment. This can cause a decrease in aggregate demand, as illustrated by the leftward shift of the aggregate demand curve in this scenario.

Which of the Following Situations Illustrates How Monetary Policy Can