Suppose Canadian Real GDP Is Equal to Potential GDP

question 39

Multiple Choice

Suppose Canadian real GDP is equal to potential GDP. A significant and sustained appreciation of the Canadian dollar would likely lead the Bank to engage in an expansionary monetary policy if the Bank's policy experts traced the cause of the appreciation to

• A)an increase in the desire of non- residents to purchase more Canadian goods and services.
• B)a decrease in the overnight lending rate.
• C)a recession in Canada.
• D)a reduction in Canada's core inflation rate.
• E)an increase in the desire of non- residents to purchase Canadian financial assets.

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Definitions:

Variable Production Costs

Costs that fluctuate directly with the level of output, including materials, labor, and other expenses that vary with production volume.

Fixed Cost

Expenses that remain constant in total regardless of changes in the level of production or sales volume, such as rent, salaries, and insurance.

Contribution Margin Ratio

A financial metric that shows what portion of sales revenue is available to cover fixed costs and generate profit after variable costs have been paid.

Fixed Expenses

Costs that do not fluctuate with changes in production level or sales volume, such as rent, salaries, and insurance premiums.