Suppose Canadian Real GDP Is Equal to Potential GDP

question 114

Multiple Choice

Suppose Canadian real GDP is equal to potential GDP.A significant and sustained appreciation of the Canadian dollar on the foreign-exchange market then requires the Bank of Canada to

• A)engage in expansionary monetary policy to counter the rise in the dollar.
• B)engage in contractionary monetary policy to counter the rise in the dollar.
• C)identify the cause of the change in the exchange rate before taking any action to adjust policy.
• D)increase the target band for the inflation rate.
• E)increase the target band for the overnight lending rate.

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Definitions:

Tariff

A tax imposed by a government on goods and services imported from other countries, used to restrict imports by increasing the price of goods and services purchased from abroad.

Quota

A government-imposed trade restriction that limits the number or monetary value of goods that can be imported or exported during a specified time frame.

Domestic Price

The price of goods and services within a country's borders, influenced by local demand and supply conditions.

World Price

The price of a good or service in the international marketplace, influenced by the global dynamics of supply and demand.