In which of the following situations would the Bank of Canada conduct contractionary monetary policy?
A)The Bank of Canada believes that aggregate demand is growing too slowly to keep up with potential GDP.
B)The Bank of Canada fears that unemployment is climbing above the natural rate.
C)The Bank of Canada is concerned that aggregate demand may continue to exceed the growth in potential GDP.
D)The Bank of Canada is worried that deflation will become a problem.
E)The Bank of Canada is concerned that the exchange is below its operating band.

Question

Quizplus · Accepted Answer

Contractionary monetary policy is implemented when the central bank believes that inflation is rising or could rise above its target. In this situation, the Bank of Canada is concerned that aggregate demand may continue to exceed the growth in potential GDP, which could lead to inflationary pressures. The central bank could increase interest rates or reduce the supply of money in the economy to slow down spending and reduce inflationary pressures.

In Which of the Following Situations Would the Bank of Canada