Long-run equilibrium due to contractionary monetary policy

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Reference no: EM133636757

Question

Bank of Canada is the only controller of money supply. Suppose the Bank of Canada contracts the money supply.

1. Explain in words and draw graphs to show how the contractionary monetary policy affects money market, the market of goods or services and aggregate demand.

2. Show graphs and explain in words how the economy reaches to a new long-run equilibrium due to the contractionary monetary policy.

Reference no: EM133636757

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