Suppose Canadian Real GDP Is Currently Equal to Potential GDP

question 103

Multiple Choice

Suppose Canadian real GDP is currently equal to potential GDP. Then the Canadian dollar depreciates due to the reduced demand by European producers to purchase Canadian- made raw materials. If the Bank of Canada is committed to its inflation target then it should

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

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Definitions:

Independence

The state or condition of being free from reliance on, control by, or influence from others, often associated with self-sufficiency.

Group Size

Refers to the number of individuals forming a social or working group, affecting dynamics and outcomes of group processes.

Social Comparison

The process of comparing oneself to others in order to evaluate or enhance one's own abilities or opinions.

Reward Power

A form of power based on the ability to distribute rewards that others view as valuable, often used in organizational contexts.