Suppose the economy is in long-run and short-run equilibrium.The Bank of Canada changes its policy by raising the bank rate.In the long run we would expect to observe

Question

Quizplus · Accepted Answer

A higher bank rate will discourage borrowing and spending, reducing aggregate demand in the short run. However, in the long run, firms will adjust their prices and wages to match the decreased spending, leading to a lower price level in the economy.

Suppose the Economy Is in Long-Run and Short-Run Equilibrium