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 (wealth effect). To offset inflationary pressures and stabilize the economy, the Bank of Canada might decrease the money supply, typically by raising interest rates.

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