Question

If the Bank of Canada conducts contractionary monetary policy, which of the following can we expect to occur? Check ALL that apply. interest rates on bonds will rise the Canadian dollar will depreciate it value investment spending will fall Canadian exports will rise and imports will fall

Answer 1

The Central Bank of Canada which is Bank of Canada generally adopts two type of monetary policy for fighting different type of situations in the country

If there is is inflationary gap in the economy then it adopts for contractionary monetary policy in which the goal is to reduce the money supply in the economy by increasing the interest rate

This will cause the fall in the investment spending, consumption

Due to this policy the currency of the Canadian dollar will appreciate and when there is appreciation of Canadian dollar then there will be more export and less import or we can say that net export is positive

High interest rate on bond will be there also

So the correct answer here are options a c and d