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Use the dynamic aggregate demand and aggregate supply model and start with Year 1 in long-run macroeconomic equilibrium.For Year 2, graph aggregate demand, long-run aggregate supply, and short-run aggregate supply such that the condition of the economy will induce the Bank of Canada to conduct a contractionary monetary policy.Briefly explain the condition of the economy and what the Bank of Canada is attempting to do.
Excess Demand
A market condition where the quantity demanded of a good exceeds the quantity supplied, leading to shortages.
Good
A tangible item or product that fulfills a need or desire and is available for purchase.
Price Ceiling
A price ceiling is a government-imposed limit on how high a price can be charged on a product or service, intended to protect consumers from high prices.
Equilibrium Price
The price at which the quantity of a good or service demanded equals the quantity supplied, resulting in market stability.
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