An increase in Canadian interest rates (caused by a monetary contraction)should

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Quizplus · Accepted Answer

An increase in Canadian interest rates will lead to an increase in the demand for Canadian dollars by foreign investors, which will lead to an increase in its external value. This is because higher interest rates make Canadian assets more attractive and profitable to foreign investors. This, in turn, can lead to a decrease in Canadian exports because the higher exchange rate will make Canadian exports relatively more expensive. A surplus in Canada's current account is not necessarily a direct outcome of an increase in interest rates, as it depends on other factors such as trade balance and capital flows. The Bank of Canada may or may not take offsetting actions in response to changes in interest rates, depending on its goals and priorities.

An Increase in Canadian Interest Rates (Caused by a Monetary