Suppose the Bank of Canada cares only about keeping the economy close to full-employment output.The Bank can target the real money supply (thus keeping the LM curve fixed)or it can target the real interest rate-changing the money supply and shifting the LM curve,however,is necessary to prevent a change in the real interest rate.
a.Which is the best policy if the main shocks to the economy are shocks to the IS curve? Explain why.
b.Which is the best policy if the main shocks to the economy are shocks to real money demand? Explain why.

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The Answer of Suppose the Bank of Canada cares only about keeping the economy close to full-employment output.The Bank can target the real money supply (thus keeping the LM curve fixed)or it can target the real interest rate-changing the money supply and shifting the LM curve,however,is necessary to prevent a change in the real interest rate.
a.Which is the best policy if the main shocks to the economy are shocks to the IS curve? Explain why.
b.Which is the best policy if the main shocks to the economy are shocks to real money demand? Explain why.

Suppose the Bank of Canada Cares Only About Keeping the Economy