Suppose We Know the Following Information About a Hypothetical Economy

question 69

Multiple Choice

Suppose we know the following information about a hypothetical economy: -real GDP = $485 billion
-potential GDP = $500 billion
-inflation rate = 4%
-target overnight interest rate = 6%
If the central bank implements a contractionary monetary policy in an effort to reduce the inflation rate,the short-run effect of this policy is likely to be that

• A)unemployment will rise further beyond the NAIRU.
• B)unemployment will fall below NAIRU.
• C)the interest rate and the inflation rate will both rise and unemployment will fall.
• D)the interest rate and the inflation rate will both fall and unemployment will rise.
• E)all real variables will remain unchanged.

---

Definitions:

CCA Class

In Canadian taxation, a classification system for capital cost allowance that categorizes assets for depreciation purposes.

Erosion Cost

Costs incurred from the gradual loss or diminishing in value of an asset over time.

Mid-range Camper

A type of recreational vehicle or accommodation designed with features and amenities that strike a balance between affordability and comfort, catering to a wide range of consumers.

Class A

A classification of common or preferred shares that typically comes with more voting rights or other benefits compared to other classes.