Again, on March 27th, 2020, The Bank of Canada decreased its target for the overnight interest...

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Economics

Again, on March 27th, 2020, The Bank of Canada decreased itstarget for the overnight interest rate to 0.25 percent \"to providesupport to the Canadian financial system and the economy during theCOVID-19 pandemic.\" The decrease in interest rates is an example ofan expansionary monetary policy. Assume a closed economy.
In three steps, describe the channels, the monetary transmissionmechanism, through which this change in policy leads to a shift ofthe aggregate demand curve (Hint: AD-AS model)
Explain what happens to aggregate demand, real GDP, andthe price level?

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4.1 Ratings (754 Votes)

The lowering of the interet rate by The Bank of Canada is meant to add a boost to the aggregate demand in the closed economy in the following mechanism 1 The lowering of interest rate will reduce the cost of borrowing in the economy 2 This will add incentive to the investors to take more loans and increase the amount of See Answer

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