How does a stock market boom affect household spending, and how would the Bank of Canada offset the effects on the price level and real GDP?
A)Household spending increases; the Bank of Canada would increase the money supply.
B)Household spending increases; the Bank of Canada would decrease the money supply.
C)Household spending decreases; the Bank of Canada would increase the money supply.
D)Household spending decreases; the Bank of Canada would decrease the money supply.

Question

Quizplus · Accepted Answer

A stock market boom increases household wealth, leading to increased spending. To offset potential inflation and stabilize real GDP, the Bank of Canada would decrease the money supply.

How Does a Stock Market Boom Affect Household Spending, and How