Suppose There Is an Inflationary Gap and the Bank of Canada

question 89

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

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