Question

4. Suppose a stock market crash reduces people’s wealth. a. Show what happens to price levels...

4. Suppose a stock market crash reduces people’s wealth.

a. Show what happens to price levels and output in Canada in the short-run.

b. Suppose the government takes no action to help the economy. What happens to price levels and output in the long-run?

c. Suppose, instead, the government decides to take action to help the economy. What action(s) would you recommend? Why?

d. If Canadian government makes the appropriate policy response, what happens to price levels and output in the long-run?

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