From an initial long-run macroeconomic equilibrium, if the Bank of Canada anticipated that next year aggregate demand would grow significantly slower than long-run aggregate supply, then the Bank of Canada would most likely
A)increase its target for the overnight rate.
B)extend fewer loans to commercial banks.
C)purchase government securities.
D)sell government securities.
E)tighten mortgage lending rules to prevent a banking crisis.

Question

Quizplus · Accepted Answer

If the Bank of Canada anticipates a significant decrease in aggregate demand, they would most likely take contractionary monetary policy. This means they would sell government securities to decrease the money supply and increase interest rates to lower aggregate demand.

From an Initial Long-Run Macroeconomic Equilibrium, If the Bank of Canada