Suppose the Canadian economy had a recessionary gap. To increase the level of desired aggregate expenditure, the Bank of Canada could

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Quizplus · Accepted Answer

To increase the level of aggregate expenditure, the Bank of Canada can decrease its target for the overnight interest rate. This will make borrowing cheaper for individuals and businesses, leading to an increase in spending and investment, thereby closing the recessionary gap. Raising the bank rate, selling securities in the open market, reducing reserve requirements, and increasing spending would all have the opposite effect of decreasing aggregate expenditure, making the recessionary gap worse.

Suppose the Canadian Economy Had a Recessionary Gap