Monetary policy is an effective demand management tool in Canada:
A) because the government balances its budget.
B) because net exports are of little importance in Canadian AD.
C) because the exchange rate is flexible and capital is highly mobile.
D) because the Bank of Canada takes policy instructions form the government.

Question

Quizplus · Accepted Answer

Monetary policy is effective in Canada partly due to the flexibility of the exchange rate and the high mobility of capital. These factors allow monetary policy adjustments (such as changes in interest rates) to have a more immediate and pronounced effect on economic activities, including investment and consumption, by influencing exchange rates and capital flows.

Monetary Policy Is an Effective Demand Management Tool in Canada