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-(Figure: The Money Supply and Aggregate Demand)Refer to Figure: The Money Supply and Aggregate Demand.If the Bank of Canada intended to encourage investment and expand the economy,it would _____ Treasury bills,_____ the money supply,and _____ interest rates.This is shown in panel _____.

Question

Use the following to answer questions: 
-(Figure: The Money Supply and Aggregate Demand)Refer to Figure: The Money Supply and Aggregate Demand.If the Bank of Canada intended to encourage investment and expand the economy,it would _____ Treasury bills,_____ the money supply,and _____ interest rates.This is shown in panel _____.

Quizplus · Accepted Answer

According to the graph, an increase in the money supply shifts the aggregate demand curve to the right, leading to higher output and lower interest rates. This expansionary monetary policy can be achieved by the Bank of Canada buying Treasury bills. Therefore, the correct choice is A, where the Bank of Canada buys Treasury bills, increases the money supply, and lowers interest rates. Panel (a) shows the effects of this expansionary monetary policy on the equilibrium level of output and the interest rate.

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