In 200 8, stock markets in Canada and other developed countries experienced very large declines, largely in
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In 200 8, stock markets in Canada and other developed countries experienced very large declines, largely in response to the failure of several large U.S. and European banks and the resulting disruption in global financial markets.
a. Explain how such stock-market declines affect wealth and thus are likely to affect the \(A D\) curve.
b. If the central banks attempt to keep output close to \(Y^{*}\), what will they likely do in response? Explain.
c. Did the Bank of Canada act as predicted in part (b)? Explain how you know.
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