When the economy is developing an inflationary gap,the Bank of Canada should increase the money supply to decrease interest rates.

Question

Quizplus · Accepted Answer

When the economy is developing an inflationary gap, the Bank of Canada should decrease the money supply to increase interest rates and reduce spending, thus slowing down inflation. Increasing the money supply would further stimulate spending and exacerbate inflation.

When the Economy Is Developing an Inflationary Gap,the Bank of Canada