If the economy is in an AD/AS equilibrium and the Bank of Canada changes the nominal money stock, we would expect:

Question

Quizplus · Accepted Answer

When the Bank of Canada changes the nominal money stock, it affects the stock of real balances (because the amount of money available for transactions changes when prices adjust), the equilibrium interest rate (as the supply of money influences the cost of borrowing), investment spending (since investment decisions are sensitive to changes in the interest rate), and aggregate demand (as changes in investment spending affect overall demand). Consequently, this leads to changes in the level of income, employment, and prices in the short run, as the economy adjusts to the new conditions. Therefore, all of the options are correct outcomes of changing the nominal money stock.

If the Economy Is in an AD/AS Equilibrium and the Bank