Figure 10.6 -Refer to Figure 10.6.Suppose the Economy Is Originally in Equilibrium

question 40

Essay

Figure 10.6

-Refer to Figure 10.6.Suppose the economy is originally in equilibrium at point A in the above figure.Explain what happens to the money supply and money demand if real GDP increases and changes the output gap if the Bank of Canada wants to keep the nominal interest rate at its target,and show these changes on the money market graph.Use the new money market graph to derive an MP curve.

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