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In: Economics

If the Bank of Canada conducts open-market purchases, how do the money supply and the aggregate...

If the Bank of Canada conducts open-market purchases, how do the money supply and the aggregate demand change?

a. The money supply decreases, and aggregate demand shifts left.

b. The money supply decreases, and aggregate demand shifts right.

c. The money supply increases, and aggregate demand shifts right.

d. The money supply increases, and aggregate demand shifts left.

Solutions

Expert Solution

If the central bank purchases government securities then there will be an increase in the supply of money in the economy as a result of which there will be more money in the hands of people due to which there will be an increase in the quantity demanded and the aggregate demand will rise as a result of which the aggregate demand curve will shift rightwards. So, the correct answer is 'Option C'.

Rahul Sunny answered 2 years ago
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