When the Bank of Canada engages in monetary "tightening",it ________ the real interest more than normal,which _________ short-run equilibrium output.
A) lowers;decreases
B) lowers;increases
C) lowers;does not change
D) raises;decreases
E) raises;increases

Question

Quizplus · Accepted Answer

When the Bank of Canada engages in monetary tightening, it raises the real interest rate more than normal. This increase in real interest rates increases the cost of borrowing, which decreases investment spending and aggregate demand. As a result, short-run equilibrium output decreases.

When the Bank of Canada Engages in Monetary "Tightening",it ________