Suppose the Economy Is Experiencing an Inflationary Gap

question 13

Multiple Choice

Suppose the economy is experiencing an inflationary gap. Which of the following describes a likely policy response by the Bank of Canada?

• A)A contractionary monetary policy which leads to a lower interest rate, reduced investment demand, and a shift to the left of the AD curve.
• B)A contractionary monetary policy which leads to a reduction in investment demand, and a shift to the left of the AD curve.
• C)An expansionary monetary policy which leads to an increase in investment demand, and a shift to the right of the AD curve.
• D)An expansionary monetary policy which leads to a decrease in investment demand, and a shift to the left of the AD curve.
• E)A contractionary monetary policy which leads to an increase in investment demand, and a shift to the right of the AD curve.

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Definitions:

Amphetamine

A potent central nervous system stimulant that is used in the treatment of attention deficit hyperactivity disorder (ADHD) and narcolepsy, among other conditions.

Accidental Overdose

The unintentional ingestion or administration of a drug or substance in quantities greater than are recommended or generally practiced.

Stimulants

Substances that increase the activity of the central nervous system, leading to increased alertness, attention, and energy.

Muscle Tension

A condition where muscles remain contracted for an extended period, often as a result of stress or physical activity, which can lead to discomfort and pain.