If there were a large and persistent recessionary gap,an appropriate monetary policy could include

Question

Quizplus · Accepted Answer

If there were a large and persistent recessionary gap, an appropriate monetary policy could be for the Bank of Canada to reduce its target for the overnight interest rate. By doing this, the cost of borrowing money for commercial banks decreases, which allows them to lend more money to consumers and businesses. This increased spending can help to stimulate the economy and fill the recessionary gap. Increasing the bank rate (A) and increasing the overnight lending rate (B) would have the opposite effect, as it would make borrowing more expensive and likely lead to decreased spending. Similarly, decreasing reserves available to commercial banks (C) would limit their ability to lend money and have a contractionary effect on the economy. Selling government securities to the public (E) would also have a contractionary effect as it would reduce the amount of money in circulation.

If There Were a Large and Persistent Recessionary Gap,an Appropriate