Exhibit 14-6
-Refer to the graph in the exhibit.Suppose the Bank of Canada is targeting interest rates, and money demand shifts from Dm to Dm′.How will the Bank of Canada react?
A) The Bank of Canada will do nothing, and the interest rate will rise to i′.
B) The Bank of Canada will do nothing, and the interest rate will settle at i.
C) The Bank of Canada will decrease the money supply to restore its target of i.
D) The Bank of Canada will increase the money supply to restore its target of i.
Correct Answer:
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