If the Bank of Canada pushes interest rates lower, policymakers at other nations' central banks will most likely ______.
A) increase their rates
B) follow suit, and drop their rates as well
C) do nothing; the Fed's actions have no influence on other countries central banks
D) keep their rates the same because a drop in U.S. rates will help their economy

Question

Quizplus · Accepted Answer

Other nations' central banks will most likely follow suit and drop their rates as well, as lower interest rates in one country can lead to increased borrowing and investment in that country, which can in turn lead to higher inflation and lower exchange rates for other countries. Therefore, central banks in other countries may lower their rates to stay competitive and avoid these negative effects.

If the Bank of Canada Pushes Interest Rates Lower, Policymakers