5) In the loanable funds markets, the Bank of Canada buys and sells bonds in order to influence money supply which in turn affects interest rates which in turn affects demand for money. On the left side of the table circle the correct answer and then fully label and show the loanable funds market curve(s) shift(s) on the graph on the right side. (6+2 x 2 marks) During an inflationary gap the Bank of Canada will i) buy/sell bonds which will ii) increase/decrease the money supply which will iii) increase/decrease interest rates which in turn will iv) open/close an inflationary gap. X V) PAN/C Q N/C (circle which is applicable) During a recessionary gap the Bank of Canada will i) buy/sell bonds which will ii) increase/decrease the money supply which will iii) increase/decrease interest rates which in turn will iv) open/close X the recessionary gap V) PAN/C QT N/C (circle which is applicable) 2 | Page