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

question 85

Multiple Choice

Exhibit 14-6

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

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

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