The figure below depicts the three possible aggregate demand curves. If the Bank of Canada the Canadian central bank)________ Canadian dollar(s), the Canadian dollar will depreciate and the aggregate demand curve will shift from AD₂ to ________.

Question

Quizplus · Accepted Answer

If the Bank of Canada increases the supply of Canadian dollars, it will lead to a decrease in the value of the currency, which in turn will shift the aggregate demand curve from AD₂ to AD₃. Therefore, option D is the correct choice. Option A is incorrect because "devalues" does not specify how the Canadian dollar is being devalued. Option B is incorrect because printing more money is not always equivalent to increasing the money supply. Option C is incorrect because decreasing the supply of Canadian dollars would cause its value to appreciate and not depreciate. Option E is incorrect because printing less money does not necessarily mean a decrease in the money supply.

The Figure Below Depicts the Three Possible Aggregate Demand Curves