If the economy is underutilizing its economic resources,the Bank of Canada should

Question

Quizplus · Accepted Answer

If the economy is underutilizing its resources, it means that there is a decrease in aggregate demand, which can lead to high unemployment rate and stagnant economic growth. To address this issue, the Bank of Canada should expand the money supply by lowering interest rates or buying government bonds. This will put more money in the hands of consumers and businesses, which will increase consumption and investment, thereby increasing aggregate demand and stimulating economic growth. Discouraging investment spending (A) or decreasing aggregate supply (C) may worsen the situation by reducing economic activity and employment. Contracting the money supply (D) will also be counterproductive as it will further decrease aggregate demand and slow down economic growth.

If the Economy Is Underutilizing Its Economic Resources,the Bank of Canada