Exhibit 14-6 -Refer to the Graph in the Exhibit.Suppose the Bank of Exhibit.Suppose

question 13

Multiple Choice

Exhibit 14-6

-Refer to the graph in the exhibit.Suppose the Bank of Canada is targeting interest rates, and money demand shifts from Dm to Dm′.How will the Bank of Canada react?  

• A) The Bank of Canada will do nothing, and the interest rate will rise to i′.
• B) The Bank of Canada will do nothing, and the interest rate will settle at i.
• C) The Bank of Canada will decrease the money supply to restore its target of i.
• D) The Bank of Canada will increase the money supply to restore its target of i.

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