If the federal government cuts spending to balance the federal budget, how can the Bank of Canada act to prevent unemployment and recession while maintaining the balanced budget?
A) by increasing the money supply
B) by decreasing the money supply
C) by raising taxes
D) by cutting expenditures

Question

Quizplus · Accepted Answer

If the federal government cuts spending to balance the budget, it will lead to lower aggregate demand, which can result in unemployment and recession. The Bank of Canada can prevent this by increasing the money supply, which will lead to an increase in aggregate demand and offset the reduction in government spending. This can help maintain a balance between controlling inflation and promoting economic growth.

If the Federal Government Cuts Spending to Balance the Federal