Beginning from a Position of Long- Run Equilibrium, a Contractionary

question 18

Multiple Choice

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

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

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Definitions:

Supply-side Arguments

Supply-side arguments focus on the belief that reducing taxes and regulations on businesses will stimulate economic growth by increasing supply, leading to job creation and income growth.

Tax Cuts

Reductions in the amount of taxes that individuals or corporations are required to pay.

Keynesian Approach

An economic theory stating that government intervention through fiscal and monetary policy is necessary to manage economic fluctuations.

President Reagan

Ronald Reagan, the 40th President of the United States, served from 1981 to 1989, known for his conservative policies and the economic doctrine referred to as "Reaganomics."