Question

Suppose that the Bank of Canada unexpectedly decreases the money supply. What will happen to unemployment in the short run? What will happen to unemployment in the long run?

Answer 1

Decrease in supply of money by canadian central bank would lead to rise in unemoployment in short term, The unemployment will further increase in long term with decrease in money supply.

If you decrease money supply the intrest rates will rise due to demand for money which is uncompetitive so wide-spread damage will happen to the structure of the countries economy.

The whole concept of decreasing money flow by central banks is actually used to curtail inflation. In most of the developed world economies inflation is very low from almost 2 decades so it is very unintended to decrease money supply.