A reduction in interest rates by the Bank of Canada with the intention of reducing a recessionary gap is called
A) expansionary monetary policy.
B) contractionary monetary policy.
C) monetary tightening.
D) negative monetary policy.
E) autonomous monetary policy.

Question

Quizplus · Accepted Answer

Expansionary monetary policy involves reducing interest rates to stimulate borrowing and increase spending in the economy. This is done to close a recessionary gap, which is the difference between the potential level of output and the current level of output during a recession. The Bank of Canada can implement this policy by decreasing the target overnight interest rate, which influences the rates at which banks lend and borrow from each other, and ultimately affects the interest rates for consumers and businesses.

A Reduction in Interest Rates by the Bank of Canada