Suppose Output Is at Its Potential Level and Then There

question 1

Multiple Choice

Suppose output is at its potential level and then there is a sudden increase in food and energy prices.This increase

• A)makes inflation targeting easier because it makes these problems less relevant.
• B)makes inflation targeting harder because these are closely related to excess demand in the economy.
• C)would be unlikely to lead to an immediate policy response because it would not appear in "core" inflation.
• D)would be offset by a decline in the Canadian dollar,making these price increases irrelevant.
• E)would lead to an immediate policy response to prevent the opening of an inflationary gap.

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Definitions:

New Debt

Funds a company borrows through the issuance of debt instruments, such as bonds or loans, as a way to finance operations or projects.

New Equity

Capital raised by a company through the issuance of new shares to investors, leading to ownership dilution for existing shareholders.

Marginal Provincial Tax Rate

The amount of tax payable on an additional dollar of income, specific to a province's taxation system.

Provincial Tax Rates

The tax rates imposed by a province or territory on income, property, and goods and services, which vary by jurisdiction.