If the economy is experiencing an undesired inflationary gap,the Bank of Canada could

Question

Quizplus · Accepted Answer

To correct an undesired inflationary gap, the Bank of Canada would want to decrease the aggregate demand in the economy. One way to do so is by decreasing the supply of money and raising interest rates, which would make it more expensive for businesses and households to borrow money, and thus reduce their spending. This would shift the AD curve inward, helping to close the inflationary gap. None of the other choices would have the same effect on AD.

If the Economy Is Experiencing an Undesired Inflationary Gap,the Bank