The monetary policy transmission mechanism in Canada:
A) flows through the government sector budget balance.
B) flows through interest rates and exchange rates to affect AD.
C) flows through international capital markets.
D) flows directly through changes in the monetary base.

Question

Quizplus · Accepted Answer

The monetary policy transmission mechanism in Canada, like in many other countries, primarily flows through interest rates and exchange rates to affect aggregate demand (AD). Changes in the policy interest rate influence borrowing costs, investment decisions, and consumption, as well as the value of the Canadian dollar, which in turn affects exports and imports.

The Monetary Policy Transmission Mechanism in Canada