Figure 14-1
-In Figure 14-1,if the economy is initially at an equilibrium output at point A and the interest rate is r₁,then an open market purchase of bonds by the Bank of Canada will

Question

Figure 14-1 
-In Figure 14-1,if the economy is initially at an equilibrium output at point A and the interest rate is r₁,then an open market purchase of bonds by the Bank of Canada will

Quizplus · Accepted Answer

An open market purchase of bonds by the Bank of Canada will increase the quantity of money in the economy, leading to a decrease in interest rates from r₁ to r₂. This decrease in interest rates will increase investment from I1 to I2, shifting the aggregate demand (AD) curve upward to the right. As a result, the new equilibrium output level will be higher than the initial output level at point A. Therefore, choice B is the correct answer.

Figure 14-1 -In Figure 14-1,if the Economy Is Initially at an Equilibrium