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

Question

Quizplus · Accepted Answer

When the Bank of Canada decreases the money supply, it reduces the amount of money available for spending and investment. This can lead to a decrease in aggregate demand, which can result in decreased prices in the short run. However, in the long run, the price level may revert back to its original level as the economy adjusts to the lower money supply.

If the Economy Is at Potential Output and the Bank