Suppose the economy is initially in short-run equilibrium and the Bank of Canada decreases the nominal money supply.If the price level remains constant,real GDP will ________ relative to potential GDP and the real interest rate will ________.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease

Question

Quizplus · Accepted Answer

A decrease in the nominal money supply, with constant price levels, reduces the real money supply, leading to higher real interest rates and a decrease in real GDP relative to potential GDP.

Suppose the Economy Is Initially in Short-Run Equilibrium and the Bank