What is the effect of a stock market boom, and how could the Bank of Canada offset that effect?
A) Aggregate demand increases, which Bank of Canada could offset by increasing the money supply.
B) Aggregate supply increases, which Bank of Canada could offset by increasing the money supply.
C) Aggregate demand increases, which Bank of Canada could offset by decreasing the money supply.
D) Aggregate supply increases, which Bank of Canada could offset by decreasing the money supply.

Question

Quizplus · Accepted Answer

A stock market boom can lead to increased wealth and optimism among investors, which can in turn lead to increased spending and demand in the economy. This can lead to inflation and the potential for an economic bubble. The Bank of Canada could offset this effect by decreasing the money supply through actions such as raising interest rates. This would make borrowing more expensive, which can reduce spending and demand in the economy.

What Is the Effect of a Stock Market Boom, and How