The figure below depicts the three possible aggregate demand curves. If the Bank of Canada (the Canadian central bank) ____________, the Canadian dollar will depreciate and the aggregate demand curve will shift from AD₂ to ____________.

Question

Quizplus · Accepted Answer

If the Bank of Canada increases the supply of Canadian dollars, this will lead to a depreciation of the Canadian dollar (as there will be more of it in circulation), causing the aggregate demand curve to shift down and to the right from AD₂ to AD₃. Therefore, the correct choice is D. Choices A, B, C, and E are incorrect as they do not accurately describe the relationship between the Bank of Canada's actions and the resulting shift in the aggregate demand curve.

The Figure Below Depicts the Three Possible Aggregate Demand Curves