How will a monetary injection by the Bank of Canada affect interest rates and aggregate demand?
A) Interest rates will increase, and aggregate demand will decrease.
B) Interest rates will increase, and aggregate demand will increase.
C) Interest rates will decrease, and aggregate demand will decrease.
D) Interest rates will decrease, and aggregate demand will increase.

Question

How will a monetary injection by the Bank of Canada affect interest rates and aggregate demand?  
A) Interest rates will increase, and aggregate demand will decrease. 
B) Interest rates will increase, and aggregate demand will increase. 
C) Interest rates will decrease, and aggregate demand will decrease. 
D) Interest rates will decrease, and aggregate demand will increase.

Quizplus · Accepted Answer

A monetary injection by the Bank of Canada typically involves the purchase of government bonds, which increases the money supply and lowers interest rates. Lower interest rates make borrowing more attractive and this increases spending and investment, thereby increasing aggregate demand. Therefore, interest rates will decrease and aggregate demand will increase as a result of a monetary injection by the Bank of Canada.

How Will a Monetary Injection by the Bank of Canada