Suppose That in Response to an Adverse Aggregate Supply Shock

question 72

Multiple Choice

Suppose that in response to an adverse aggregate supply shock, the Bank of Canada increased the money supply. What would happen to unemployment and inflation?

• A)Unemployment and inflation would both be rise.
• B)Unemployment and inflation would both fall.
• C)Unemployment would rise and inflation would fall.
• D)Unemployment would fall and inflation would rise.

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Definitions:

Foreign-Currency Exchange

The process of exchanging one currency for another, determining how much one currency is worth in terms of another.

Loanable Funds

The loanable funds market is a conceptual framework for understanding the market where borrowers and lenders interact, determining the supply and demand for loans and consequently the interest rate.

National Saving

The total amount of savings in a country, calculated as the sum of private savings by households and businesses, plus public savings by the government, minus any foreign borrowing.

Open-Economy Macroeconomic

A branch of macroeconomics that studies economies in which international trade and financial transactions play a significant role.