Assume that the Bank of Canada's policy is to keep the price level from either rising or falling.If aggregate supply increases in the economy, the Bank of Canada:
A)will have to increase interest rates to keep the price level from falling.
B)will have to reduce the money supply to keep the price level from rising.
C)will have to increase the money supply to keep the price level from falling.
D)can keep the price level stable without altering the money supply or interest rate.

Question

Quizplus · Accepted Answer

If aggregate supply increases, it typically leads to a decrease in the price level. To counteract this and maintain a stable price level, the Bank of Canada would need to increase the money supply, which would help boost demand and stabilize prices.

Assume That the Bank of Canada's Policy Is to Keep