Figure 10.4 -Refer to Figure 10.4..Suppose the economy's equilibrium starts out with an output gap of $\hat{Y}$ ₁,and real GDP increases so the C $\hat{Y}$ ₂.If the Bank of Canada keeps the money supply constant,money demand will ________ and the nominal interest rate will ________. A) increase; increase B) increase; decrease C) increase; remain constant D) remain constant; remain constant

Question

Quizplus · Accepted Answer

The increase in real GDP will lead to an increase in the demand for money, as people will need more money to finance their increased spending. The Bank of Canada's decision to keep the money supply constant will mean that the nominal interest rate will have to increase in order to bring the money market back into equilibrium.

Figure 104 -Refer to Figure 10 Y^\hat{Y}Y^ ₁,And Real GDP Increases So the C

Figure 104

-Refer to Figure 10 $\hat{Y}$ ₁,And Real GDP Increases So the C