Nominal Interest Quantity Demanded Quantity Supplied Price Level ADO ($ billions) (Dm) AS Rate (%) ($ billions ) (Sme) (2012 = 100) (2012 $ billlions) (2012 $ billions) 4 250 300 135 300 650 w 300 300 130 400 600 2 400 300 125 500 500 1 600 300 120 600 300 300 115 700 a. Suppose the economy is facing an unemployment rate of 8.5%, and a declining rate of inflation. Because this economy is facing a(n) (Click to select) v gap its central bank should use a(n) (Click to select) | monetary policy. b. The steps by which this monetary policy will affect the economy are as follows. The Bank of Canada (Click to select) | government bonds. This (Click to select) | banks' excess reserves and (Click to select) | the money supply. With the resulting (Click to select) | in the equilibrium nominal interest rate, investment and consumption spending on durables (Click to select) . Aggregate demand shifts to the (Click to select) | which means the equilibrium price level (Click to select) v and equilibrium output (Click to select) v . The (Click to select) | gap therefore (Click to select) v c. Draw one graph showing the demand and supply curves Dim and Smo in the money market and another graph showing the aggregate demand and aggregate supply curves ADo and AS in the economy. Plot 4 points to draw the demand curve, Dm, and 4 points for the aggregate supply curve, AS. Plot only the 2 endpoints to draw the supply curve, Smo, and the aggregate demand curve, ADO The Money Market Aggregate Demand and Supply for an economy for an economy