In the short run, if the Bank of Canada follows an interest rate rule it reacts to a recessionary gap by
_________interest rates, then aggregate expenditure ______, aggregate demand ______, and short-run equilibrium output _______.

Question

Quizplus · Accepted Answer

In response to a recessionary gap, the Bank of Canada would decrease interest rates to stimulate borrowing and investment, leading to increased aggregate expenditure. This, in turn, boosts aggregate demand, resulting in an increase in short-run equilibrium output.

In the Short Run, If the Bank of Canada Follows