✅ (Solved): Is this true or false, “A contractionary monetary policy undertaken by the Bank of Canada will result into a depreciation of the Canadian Dollar.” Explain your choice in depth.

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Physiology

Is this true or false, “A contractionary monetary policy undertaken by the Bank of Canada will result into a depreciation of the Canadian Dollar.” Explain your choice in depth.

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Private answer

False
Explanation:
Contractionary monetary policy is a policy that is enacted by the central bank to fight inflation, which entails decreasing the money supply in the economy. The bank of Canada can fight inflation through increase in federal funds rate or interest rates which increases the cost of borrowing. When there is less money supply in the economy, and high interest rates, the value of Canadian Dollar increases as more foreign investor seek to invest in Canada and earn the high interest rates. COntractionary monetary policy causes currency appreciation.

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Answered on June 25, 2020 6:36 pm

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