When the Bank of Canada raises the domestic real interest rate to close an expansionary gap,it __________ the __________ Canadian assets by foreign investors.Under the flexible exchange rate system this,in turn,increases the __________ dollars,resulting in a(n)___________ of the dollar.

Question

Quizplus · Accepted Answer

Raising the real interest rate makes Canadian assets more attractive, increasing demand for them. This increases demand for Canadian dollars, leading to appreciation.

When the Bank of Canada Raises the Domestic Real Interest