Which of the following actions might the Bank of Canada take in order to close a recessionary gap?
A) increase government spending
B) decrease taxes
C) sell Canadian government bonds to banks
D) lower the bank rate

Question

Which of the following actions might the Bank of Canada take in order to close a recessionary gap?  
A) increase government spending 
B) decrease taxes 
C) sell Canadian government bonds to banks 
D) lower the bank rate

Quizplus · Accepted Answer

Lowering the bank rate would encourage borrowing and spending, which would increase aggregate demand and help close the recessionary gap. Increasing government spending or decreasing taxes could also increase aggregate demand, but these policies may not be feasible due to budget constraints. Selling government bonds to banks may affect interest rates and the money supply, but it may not be enough to close a recessionary gap.

Which of the Following Actions Might the Bank of Canada