The front-page headline of your local newspaper states that the Bank of Canada is becoming increasingly worried about the rate of inflation and wants to slow the economy.Which of the following policies is the Bank of Canada most likely to pursue?
A)Increase taxes.
B)Devalue the dollar on international currency exchanges.
C)Decrease interest rates.
D)Restrict the money supply and drive up interest rates.

Question

Quizplus · Accepted Answer

Decreasing the money supply and driving up interest rates is a contractionary monetary policy that is used to slow down the economy and combat inflation. Increasing taxes or devaluing the dollar would have different effects on the economy and would not directly address inflation. Decreasing interest rates is an expansionary monetary policy used to stimulate the economy, which would be counterproductive in this situation.

The Front-Page Headline of Your Local Newspaper States That the Bank