When the Bank of Canada raises interest rates, the international transmission mechanism creates a ________ and the domestic transmission mechanism creates a ________.

Question

Quizplus · Accepted Answer

When the Bank of Canada raises interest rates, it generally leads to a decrease in spending and investment domestically, which is a negative demand shock. Internationally, higher interest rates can lead to a stronger currency, reducing exports and also leading to a negative demand shock.

When the Bank of Canada Raises Interest Rates, the International