What Is the Policy Response by the Bank of Canada

question 16

Multiple Choice

What is the policy response by the Bank of Canada to an inflationary gap in one region of Canada (e.g. the West) when at the same time a recessionary gap exists in another region of Canada (e.g. Ontario) ?

• A)There are automatic stabilizers inherent in monetary policy that allow the policy to adjust to close the output gap.
• B)The Bank of Canada implements monetary policy in each region of Canada as required.
• C)The Bank of Canada responds to the average level of inflation in the country and implements a single monetary policy.
• D)Each regional office of the Bank of Canada implements the appropriate monetary policy for that region.
• E)The Bank of Canada consults with the commercial banks on the appropriate level of deposit creation for each region of the country.

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Definitions:

Budget Constraint

An economic model that represents all the combinations of goods and services that a consumer can afford with a fixed amount of income.

Goods

Physical items that are produced and consumed by individuals or businesses to satisfy needs or wants.

Marginal Rate

The rate at which one variable changes relative to a change in another variable, often used in the context of marginal tax rates or marginal rates of substitution.

Convex Preferences

A preference structure where the consumer prefers mixed bundles of goods to extreme bundles, represented graphically by a bowed-inward indifference curve.