If the stock market crashes, what would be the effect on aggregate demand and how could the Bank of Canada offset those effects?
A) aggregate demand increases; by increasing the money supply
B) aggregate demand increases; by decreasing the money supply
C) aggregate demand decreases; by increasing the money supply
D) aggregate demand decreases; by decreasing the money supply

Question

Quizplus · Accepted Answer

A stock market crash typically reduces wealth, leading to decreased consumer spending and investment, thus decreasing aggregate demand. The Bank of Canada could offset this by increasing the money supply, which can lower interest rates and encourage spending and investment.

If the Stock Market Crashes, What Would Be the Effect