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

Question

Quizplus · Accepted Answer

If the economy is at potential output, there is no slack in the economy and any increase in the money supply will lead to an excess demand for goods and services. This will cause prices to rise as firms increase prices to ration the limited supply of goods and services.

If the Economy Is at Potential Output and the Bank