When the Bank of Canada fights inflation by implementing open market operations, the supply of loanable funds curve shifts ________ and the aggregate demand curve shifts ________.
A)leftward; leftward
B)leftward; rightward
C)rightward; leftward
D)rightward; rightward
E)leftward; leftward, and potential GDP decreases

Question

Quizplus · Accepted Answer

When the Bank of Canada fights inflation by implementing open market operations, it sells government securities. This leads to a decrease in the money supply, causing the supply of loanable funds curve to shift leftward. As a result, interest rates increase, discouraging borrowing and investment. This decrease in investment and consumption leads to a leftward shift in the aggregate demand curve. Additionally, potential GDP may decrease due to a decrease in investment and aggregate demand.

When the Bank of Canada Fights Inflation by Implementing Open