If the Bank of Canada chooses to prevent any change in the exchange rate when government spending increases, which of the following is most likely to happen?
A)crowding out effects
B)no crowding out effects
C)no increase in the demand for goods and services
D)a decrease in aggregate demand

Question

Quizplus · Accepted Answer

If the Bank of Canada prevents any change in the exchange rate, it can offset the crowding out effects by adjusting monetary policy to accommodate the increase in government spending, maintaining aggregate demand.

If the Bank of Canada Chooses to Prevent Any Change