In terms of the aggregate demand and aggregate supply model, the sale of government bonds by the Bank of Canada to chartered banks will:
A)increase aggregate supply.
B)decrease aggregate supply.
C)increase aggregate demand.
D)decrease aggregate demand.

Question

Quizplus · Accepted Answer

Selling government bonds to chartered banks by the Bank of Canada reduces the money supply in the economy. The decrease in money supply increases interest rates in the economy, which results in decreased investment and consumption spending. As a result, aggregate demand decreases.

In Terms of the Aggregate Demand and Aggregate Supply Model