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

Question

Quizplus · Accepted Answer

When the Bank of Canada increases the money supply when the economy is at potential output, it increases the aggregate demand. As a result, it will lead to an increase in prices since the economy is already at its maximum capacity to produce. In the long run, the increased money supply will lead to an increase in prices as businesses are unable to increase output to meet the additional demand, leading to inflation.

If the Economy Is at Potential Output and the Bank