The figure below depicts the three possible aggregate demand curves. If the Bank of Canada (the Canadian central bank)________ Canadian dollar(s),the Canadian dollar will depreciate and the aggregate demand curve will shift from AD₂ to ________.

Question

Quizplus · Accepted Answer

If the Bank of Canada increases the supply of Canadian dollars, it will lead to a depreciation of the Canadian dollar. This is because an increase in supply will lead to a decrease in the value of the Canadian dollar (since there will be more supply than demand), making Canadian exports cheaper and imports more expensive. This, in turn, will shift the aggregate demand curve to the right, from AD₂ to AD₃, as consumers will be more willing and able to purchase goods and services at lower prices.

The Figure Below Depicts the Three Possible Aggregate Demand Curves