Lets examine how the goals of the Bank of Canada influence its response to shocks. Suppose central

Question:

Let’s examine how the goals of the Bank of Canada influence its response to shocks. Suppose central bank A cares only about keeping the price level stable, and central bank B cares only about keeping output and employment at their natural rates. Explain how each central bank would respond to
a. An exogenous decrease in the velocity of money.
b. An exogenous increase in the price of oil.