Monetary policy could be procyclical if the Bank of Canada
A)is late recognizing that a recession has begun and conducts expansionary monetary policy.
B)is quick to recognize that a recession has begun and conducts expansionary monetary policy.
C)is late recognizing that a recession has begun and does not conduct expansionary monetary policy.
D)is quick to recognize that a recession has begun and does not conduct expansionary monetary policy.
E)is quick to recognize that a recession has ended and conducts contractionary monetary policy.

Question

Quizplus · Accepted Answer

If the Bank of Canada is late in recognizing that a recession has begun and conducts expansionary monetary policy, it is procyclical because it is increasing the money supply and stimulating the economy when it is already growing. This can exacerbate inflation and asset bubbles.

Monetary Policy Could Be Procyclical If the Bank of Canada