Given its existing policy regime of "inflation targeting", the Bank of Canada would likely react to a large negative AD shock by

Question

Quizplus · Accepted Answer

Inflation targeting focuses on maintaining price stability, and in response to a negative AD shock, the Bank of Canada would likely lower its target for the overnight interest rate to promote economic growth and increase aggregate demand. This would lead to lower borrowing costs and increased spending, thus helping to mitigate the effects of the shock.

Given Its Existing Policy Regime of "Inflation Targeting", the Bank