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

The most effective way for the Bank of Canada to increase the level of desired aggregate expenditure when the economy has a recessionary gap is by reducing its target for the overnight interest rate. This would lead to a decrease in interest rates throughout the economy and increase the demand for goods and services, thus increasing aggregate expenditure. Raising the bank rate, increasing spending, increasing reserve requirements, and selling securities in the open market would all have contractionary effects on the economy and likely worsen the recessionary gap. Therefore, reducing the target for the overnight interest rate is the best choice.

Suppose the Canadian Economy Had a Recessionary Gap