If the Bank of Canada is concerned with inflation it will ________ the overnight loans rate to ________.
A)raise; increase aggregate demand
B)lower; increase aggregate demand
C)raise; decrease aggregate demand
D)lower; decrease aggregate demand
E)raise; increase potential GDP

Question

Quizplus · Accepted Answer

If the Bank of Canada is concerned with inflation, it will raise the overnight loans rate to decrease aggregate demand. This is because higher interest rates discourage borrowing and spending, which in turn reduces demand and can help to slow down inflation. Lowering the overnight loans rate would have the opposite effect, increasing aggregate demand and potentially exacerbating inflationary pressures. Raising the overnight loans rate does not necessarily increase potential GDP, as this depends on a variety of other factors affecting long-term economic growth.

If the Bank of Canada Is Concerned with Inflation It