How does a fiscal policy conflict with monetary policy?
A) In a recessionary period, the Bank of Canada wants low interest rates to encourage spending, but heavy government borrowing for fiscal expansion pushes up interest rates.
B) In an inflationary period, the Bank of Canada wants low interest rates to increase spending, but government wants high interest rates for its borrowing.
C) In a recessionary period, the Bank of Canada wants low interest rates to discourage spending, but heavy government borrowing for fiscal expansion pushes up interest rates.
D) In an inflationary period, the Bank of Canada wants high interest rates to encourage spending, but government wants low interest rates for its borrowing.

Question

Quizplus · Accepted Answer

In a recessionary period, the Bank of Canada may lower interest rates to encourage spending and investment. However, if the government borrows heavily to finance fiscal expansion, it can lead to higher interest rates, counteracting the Bank's efforts.

How Does a Fiscal Policy Conflict with Monetary Policy