Beginning from a Position of Long-Run Equilibrium,an Expansionary Monetary Policy

question 40

Multiple Choice

Beginning from a position of long-run equilibrium,an expansionary monetary policy by the Bank of Canada causes

• A)aggregate demand for goods and services to exceed potential output.
• B)aggregate demand for goods and services to fall short of potential output.
• C)an increase in most market interest rates.
• D)a fall in the general price level.
• E)an increase in the level of potential output.

---

Definitions:

Call Premium

The additional amount that must be paid over the par value by the issuer to redeem a callable security before its maturity date.

Default Risk Premium (DRP)

The additional yield that investors demand for holding a bond that has a risk of default over a risk-free bond.

Liquidity Premium (LP)

Additional return that investors demand for holding an asset that is not easily convertible to cash without a loss in value.

Real Risk-free Rate

The return on an investment with no risk of financial loss, adjusted for inflation.