By engaging in quantitative easing,the Bank of Canada is attempting to reduce the ________,causing the MP curve to ________.
A) term premium and the real interest rate; shift down
B) unemployment rate and the inflation rate; shift down
C) short-term nominal and real interest rates; shift up
D) federal funds rate; shift up

Question

Quizplus · Accepted Answer

Quantitative easing involves increasing the money supply in the economy, which can lead to a reduction in the term premium (the additional amount investors demand to hold longer-term bonds) and ultimately a decrease in the real interest rate. This shift would be shown as a downward shift in the MP curve.

By Engaging in Quantitative Easing,the Bank of Canada Is Attempting