Suppose Canadian Real GDP Is Equal to Potential GDP

question 11

Multiple Choice

Suppose Canadian real GDP is equal to potential GDP. An appreciation of the Canadian dollar then implies that the Bank of Canada should engage in

• A)a tightening of monetary policy because of the excess demand for Canadian products that is creating the appreciation.
• B)either a contractionary or an expansionary policy, depending on the cause of the appreciation.
• C)no change in monetary policy because the exchange rate is always allowed to float freely.
• D)a loosening of monetary policy because of the excess demand for Canadian products that is creating the appreciation.
• E)an increase in inflation because of the higher cost of imports.

Recognize the historical background and purpose of the General Agreement on Tariffs and Trade (GATT).

Differentiate between various arguments made for trade restrictions and their validity.

Apply knowledge of trade theory to evaluate national policy decisions.

Understand how taxes affect market equilibrium, including changes in consumer surplus, producer surplus, and government revenue.

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Definitions:

Price

The monetary value assigned to a product or service, determined by various factors including supply, demand, and production costs.

Diagram

A simplified drawing or plan that represents facts, figures, or ideas through symbols, shapes, or lines.

Equilibrium Price

The cost at which the amount of a product sought by consumers matches the amount available from suppliers, leading to equilibrium in the market.

Demand Curve

A graph showing the relationship between the price of a good and the quantity of that good consumers are willing and able to purchase, typically depicting a downward slope.