The Bank of Canada can engage in preemptive strikes against a rise in inflation by ________ the overnight rate; it can act preemptively against negative demand shocks by ________ the overnight rate.

Question

Quizplus · Accepted Answer

When the Bank of Canada perceives a rise in inflation, it can raise the overnight rate to discourage borrowing and spending, which in turn can help reduce demand and keep prices from rising higher. On the other hand, when the Bank of Canada sees negative demand shocks, such as a recession, it can lower the overnight rate to stimulate borrowing and spending, which can increase demand and help stabilize the economy.

The Bank of Canada Can Engage in Preemptive Strikes Against