A significant reduction of the official interest rate by the Bank of Canada would be expected to
A) increase consumption spending on domestic goods.
B) increase investment spending on domestic goods.
C) increase net foreign spending on domestic goods.
D) shift up the expenditure line.
E) increase consumption,investment,and net foreign spending,and shift up the expenditure linE.

Question

Quizplus · Accepted Answer

A reduction in the official interest rate by the Bank of Canada would decrease the cost of borrowing for consumers and businesses, leading to an increase in consumption and investment spending. Additionally, a lower interest rate would decrease the demand for the domestic currency, making domestic goods relatively cheaper for foreign buyers and increasing net foreign spending on domestic goods. As a result, all components of expenditure - consumption spending, investment spending, and net foreign spending - would increase, leading to a shift up in the expenditure line.

A Significant Reduction of the Official Interest Rate by the Bank