Suppose There Is an Inflationary Gap,and the Bank of Canada

question 81

Multiple Choice

Suppose there is an inflationary gap,and the Bank of Canada does not respond in any way to change its monetary policy.This scenario will lead to

• A)an increase in wages and an upward shift of the AS curve.
• B)a wage-price spiral.
• C)a permanent decrease in output.
• D)the emergence of a recessionary gap.
• E)reduced transactions demand for money,an increase in the price of bonds,and a lower rate of interest.

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Definitions:

Price Floor

A price floor is a government- or authority-imposed minimum price set above the equilibrium price, preventing the market price from falling below it.

Shortage

A situation where demand for a product or service exceeds its supply in a market.

Surplus

The amount by which the quantity supplied of a good exceeds the quantity demanded at a specific price.

Price Ceiling

A legal maximum price set below the equilibrium price, preventing sellers from charging more than this amount.