Given its existing policy regime of "inflation targeting," the Bank of Canada would likely react to a large negative AD shock by

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Inflation targeting is a monetary policy framework where central banks set a target for the inflation rate and adjust the interest rates to achieve this target. In case of a large negative AD shock, the demand for goods and services would decrease, leading to lower prices and lower inflation. To counteract this, the Bank of Canada would decrease its target for the overnight interest rate, making it cheaper for banks to borrow money and lend money to households and businesses, which stimulates spending and increases demand. This would help to support the economy and prevent a deflationary spiral.

Given Its Existing Policy Regime of "Inflation Targeting," the Bank