Figure 14-2
-In Figure 14-2,suppose the economy was initially in an equilibrium at point A.What point would represent the short run equilibrium if the Bank of Canada makes an open market purchase of bonds?

Question

Figure 14-2 
-In Figure 14-2,suppose the economy was initially in an equilibrium at point A.What point would represent the short run equilibrium if the Bank of Canada makes an open market purchase of bonds?

Quizplus · Accepted Answer

An open market purchase of bonds by the Bank of Canada would increase the money supply, shifting the LM curve down and to the right. This would lead to a decrease in the interest rate and an increase in output. The new short run equilibrium would be at point B, where the IS and LM curves intersect at a higher level of output and a lower interest rate.

Figure 14-2 -In Figure 14-2,suppose the Economy Was Initially in an Equilibrium