Question

The following questions asks you to examine the effects of the pandemic on the Canadian economy. In here, we assume Canada is a closed economy and initially in its long-run equilibrium. Each part of the question is NOT related to other parts of the question.

a) Since the outbreak, the Bank of Canada pursued quantitative easing (QE) in attempt to stabilize the economy and, at the same time, many businesses promote the use of digital payment to minimize contacts. What happens to the long-run price level? Explain.

Answer 1

SOLUTION:-

a)

* Quantitative easing is the expansionary monetary policy that is used to stimulate the consumption and ivestment spending.

* At the same time, focus upon digital payment is also going to icrease the business activities in the economy of Canada.

* Further, the digital payment, will help firm continue the supply and keep creating new jobs.

* So, purchasing power will remain intact for the people in the economy of Canada.

* It will make economy to be in a healthy state and long run price level will increase.

* It will be equal to or just over the long run inflation rate target of the bank of Canada, as AD will shift to the right with given intiatives.

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