Answer to Question #51258 in Macroeconomics for bob
(a) As a result of a correction in Canadian housing prices, domestic consumption spending falls.
(b) The Bank of Canada pursues an expansionary monetary policy.
(c) The discovery of a cheap “cold fusion” technology reduces other energy prices [Hint: Canada is an
exporter of traditional energy products.]
(b) If the Bank of Canada pursues an expansionary monetary policy, the money supply will increase, so the aggregate demand increase, the aggregate demand curve will shift to the right, the equilibrium price level and output will increase. But in the long run the aggregate supply curve will shift to the left, so the price level will increase again, but the equilibrium output will adjust to the beginning point.
(c) If the discovery of a cheap “cold fusion” technology reduces other energy prices, the aggregate supply will decrease, so the price level will increase and the output will decrease. In the long-run the aggregate demand will increase and the output will return to the initial level, but the price level will increase again.
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