If the economy is at potential output and the Bank of Canada increases the money supply,in the short run the aggregate demand will likely:

Question

Quizplus · Accepted Answer

When the Bank of Canada increases the money supply, it leads to a decrease in interest rates, making borrowing cheaper, which encourages spending and investment. With more spending and investment, aggregate demand is likely to increase in the short run, leading to an increase in output and prices. Therefore, the correct answer is (C) increase.

If the Economy Is at Potential Output and the Bank