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Suppose the Bank of Canada's Short-Run Response to Any Change

question 6

Essay

Suppose the Bank of Canada's short-run response to any change in the economy is to change the money supply to maintain the existing real interest rate.What would happen to money supply if there were a reduction in government purchases? Given the Bank of Canada's policy,what would happen in the very short run (before general equilibrium is restored)to output and the real interest rate? What must happen to the LM curve and the price level to restore general equilibrium?


Definitions:

Enforce

The act of compelling compliance or obedience to a law, rule, agreement, or order.

Negotiable Instruments

Financial documents, such as checks, drafts, or promissory notes, that guarantee the payment of a specified amount of money to a specific person or entity.

Agent

A person or entity authorized to act on behalf of another (the principal), in dealings with third parties.

Corporation

A legal entity recognized by law as separate from its owners, with its rights and liabilities, capable of conducting business, entering contracts, and owning assets.

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