Suppose the Bank of Canada releases a policy statement today which leads people to believe that the Bank will be enacting expansionary monetary policy in the near future. Everything else held constant, the release of this statement would immediately cause the demand for Canadian assets to ________ and the Canadian dollar to ________.

Question

Quizplus · Accepted Answer

Expansionary monetary policy typically involves lowering interest rates, which makes domestic assets less attractive to investors (decreasing demand for Canadian assets) and tends to depreciate the domestic currency (Canadian dollar) as capital flows out in search of higher returns elsewhere.

Suppose the Bank of Canada Releases a Policy Statement Today