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

Question

Quizplus · Accepted Answer

With "inflation targeting" as its existing policy regime, the Bank of Canada aims to keep inflation within a target range by adjusting the overnight interest rate. Therefore, in response to a large positive aggregate demand shock, the Bank of Canada would likely increase its target for the overnight interest rate to keep inflation in check and prevent it from exceeding the target range. This would decrease aggregate demand and help prevent excessive inflation.

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