When the Bank of Canada makes an open market purchase,long-term real interest rates will ________,which will ________ GDP.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease

Question

Quizplus · Accepted Answer

When the Bank of Canada makes an open market purchase, it increases the money supply, leading to a decrease in long-term real interest rates. Lower interest rates make borrowing more attractive, which stimulates investment and consumption, leading to an increase in GDP. Therefore, the correct choice is C: decrease in long-term real interest rates, which will increase GDP.

When the Bank of Canada Makes an Open Market Purchase,long-Term