Figure 17-4
-Refer to Figure 17-4. If the economy is at point a and the Bank of Canada pursues an expansionary monetary policy, then the economy will move to which point in the short and long run?

Question

Figure 17-4 
-Refer to Figure 17-4. If the economy is at point a and the Bank of Canada pursues an expansionary monetary policy, then the economy will move to which point in the short and long run?

Quizplus · Accepted Answer

Expansionary monetary policy initially increases aggregate demand, moving the economy to a higher output and price level in the short run (point b). Over time, as prices and wages adjust, the economy moves back to its potential output but at a higher price level (point c).

Figure 17-4 -Refer to Figure 17-4. If the Economy Is at Point