If the Economy Is at Potential Output and the Bank

question 196

Multiple Choice

If the economy is at potential output and the Bank of Canada decreases the money supply,in the short run the aggregate demand will likely:

• A) shift to the right.
• B) remain the same.
• C) increase.
• D) decrease.

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Definitions:

Money Supply

The aggregate sum of liquid assets within an economy at a given time, including cash, bank deposits, and assets that can be quickly turned into cash.

Demand for Money

The desire or need by individuals and businesses to hold liquid assets, primarily currency and demand deposits, for transactional, precautionary, and speculative purposes.

Nominal GDP

Nominal Gross Domestic Product refers to the market value of all final goods and services produced within a country in a given period, measured in current market prices.

Expansionary Monetary Policy

A monetary policy strategy used by central banks to increase the money supply to stimulate economic growth, typically by lowering interest rates.