A significant increase in the official interest rate by the Bank of Canada may be expected to:
A) decrease consumption and investment spending on domestic goods.
B) decrease net exports.
C) shift down the aggregate demand curve to the left and lower real GDP and inflation.
D) all of the above.

Question

Quizplus · Accepted Answer

An increase in the official interest rate by the Bank of Canada makes borrowing more expensive, which can lead to decreased consumption and investment spending on domestic goods. It can also increase the value of the Canadian dollar, making exports more expensive and imports cheaper, thus decreasing net exports. These factors collectively contribute to a shift in the aggregate demand curve to the left, which lowers real GDP and inflation.

A Significant Increase in the Official Interest Rate by the Bank