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 decrease in investment and a decrease in consumption.

Question

Quizplus · Accepted Answer

If the Bank of Canada decreases the money supply when the economy is already at potential output, it leads to a decrease in aggregate demand, which will result in a decrease in investment and consumption. This is because when there is less money in circulation, people and businesses have less money to spend on goods and services, leading to a decrease in overall economic activity.

If the Economy Is at Potential Output and the Bank