If the Bank of Canada lowers the overnight loans rate, the exchange rate ________, and net exports ________.

Question

Quizplus · Accepted Answer

If the Bank of Canada lowers the overnight loans rate, it becomes cheaper for banks to borrow money, and they will be more likely to lend to businesses and consumers. This will increase the money supply and lower interest rates, making domestic goods and services cheaper for foreign buyers. This will cause an increase in net exports and a decrease in the exchange rate, as there is now more demand for the Canadian dollar. Therefore, the correct answer is C (falls; increase).

If the Bank of Canada Lowers the Overnight Loans Rate