If the economy is at potential output and the Bank of Canada decreases the money supply,in the short run the likely result will be a(n)_____ in investment and a(n)_____ in consumption.

Question

Quizplus · Accepted Answer

If the economy is at potential output, then the short-run aggregate supply curve (SRAS) is vertical, meaning that any decrease in the money supply will result in a decrease in the aggregate demand (AD) curve. The decrease in AD will cause a decrease in both investment and consumption. Therefore, the correct answer is D, decrease;decrease.

If the Economy Is at Potential Output and the Bank