Why would Canadian monetary policy be ineffective if we fixed the value of our dollar to that of the U.S.dollar?
A)Expanding the money supply in Canada would crowd out investment spending.
B)Contracting the money supply in Canada would crowd out investment spending.
C)Expanding the money supply in Canada would cause a rise in interest rates and an outflow of Canadian dollars and thereby frustrate the money expansion.
D)Expanding the money supply in Canada would cause a fall in interest rates and an outflow of Canadian dollars and thereby frustrate the money\expansion.

Question

Quizplus · Accepted Answer

When a country fixes its currency to another, like the Canadian dollar to the U.S. dollar, expanding the money supply typically leads to lower interest rates. Lower interest rates, in turn, can cause investors to move their capital to countries with higher returns, leading to an outflow of the domestic currency. This outflow can counteract the effects of the monetary expansion, making the policy ineffective at stimulating the economy as intended.

Why Would Canadian Monetary Policy Be Ineffective If We Fixed