Suppose Canadian Real GDP Is Currently Equal to Potential GDP

question 57

Multiple Choice

Suppose Canadian real GDP is currently equal to potential GDP. Then, because of events elsewhere in the world, European investors decide to hold fewer Canadian financial assets, which leads to a sustained depreciation of the Canadian dollar . If the Bank of Canada is committed to its inflation target then it should

• A)implement an expansionary monetary policy by decreasing its target for the overnight interest rate.
• B)implement an expansionary monetary policy by increasing its target for the overnight interest rate.
• C)not intervene in the economy at all since this shock will not have any real effects in the short run.
• D)implement a contractionary monetary policy by decreasing its target for the overnight interest rate.
• E)implement a contractionary monetary policy by increasing its target for the overnight interest rate.

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Definitions:

Statistical Software SAS

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A statistical analysis method used to analyze the effects of two independent variables on a dependent variable and the interaction between them.