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:

Sympathetic System

Part of the autonomic nervous system that activates what is often termed the fight or flight response, preparing the body for rapid action in response to a perceived threat.

Parasympathetic System

controls homeostasis and the body at rest and is responsible for the body's "rest and digest" response.

CNS

The central nervous system, comprising the brain and spinal cord, responsible for integrating sensory information and responding accordingly.

Seizure Disorder

A neurological condition characterized by episodes of uncontrolled electrical activity in the brain, leading to convulsions, sensory disturbances, or loss of consciousness.