Figure 10.5 -Refer to Figure 10.5.A shift from MP₁ to MP₃ will occur if A) investors increase the short-term interest they expect in the future. B) investors increase the term premium they require on long-term bonds. C) the Bank of Canada decreases its target for the short-term nominal interest rate. D) the expected inflation rate decreases.

Question

Quizplus · Accepted Answer

A shift from MP₁ to MP₃ indicates a decrease in the short-term interest rate. This can happen if the Bank of Canada decreases its target for the short-term nominal interest rate. Therefore, choice C is the correct answer. Choices A, B, and D are incorrect as they do not explain the shift from MP₁ to MP₃.

Figure 10.5 -Refer to Figure 10.5.A Shift from MP₁ to MP₃ Will