Which of the following situations illustrates how monetary policy can influence aggregate demand?

Question

Accepted Answer

The Bank of Canada raises interest rates. If people plan to buy fewer consumer durables, aggregate demand decreases.

Answer

The government reduces the goods and services tax. If household consumption expenditure increases, aggregate demand increases.

Answer

Government increases its expenditure on goods and services. If private investment decreases, aggregate demand might not change.

Answer

The Canadian dollar exchange rate rises. If Canadian living near the U.S.-Canada border increase their imports of goods, aggregate demand decreases.

Answer

The expected future profit increases. If investors decide to save more, aggregate demand decreases.

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