Short Answer Questions - Choose 1 of 3 - 10 Marks

1. List and discuss in detail two possible reasons why borrowers would offer high interest rates on their bonds.

2.What monetary policy would the Bank of Canada implement if the economy was suffering from unemployment and weak economic growth.Identify and briefly explain two tools of monetary policy and how each could be used to address the above problem.

3. Using the market for loanable funds, explain what happens to the real interest rate and the quantity of investment in Canada, if the Canadian government succeeds in running budget deficits.