It is difficult for the Bank of Canada to remove a sustained inflation without producing stagflation.It is difficult because inflationary expectations cause the

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If the Bank of Canada tries to lower inflation by reducing the level of aggregate demand, it may cause a negative supply shock (for example, through disruptions in oil supplies or unexpected cost increases) that shifts the AS curve upward. As a result, output falls and prices continue to rise, leading to stagflation. Therefore, it is difficult for the Bank of Canada to remove sustained inflation without causing stagflation.

It Is Difficult for the Bank of Canada to Remove