Starting from Long-Run Equilibrium, If a Drought Pushes Up Food

question 6

Multiple Choice

Starting from long-run equilibrium, if a drought pushes up food prices throughout the economy, the Bank of Canada could move the economy more rapidly back to full employment output by:

• A)increasing the money supply, but at the cost of permanently higher prices.
• B)decreasing the money supply, but at the cost of permanently lower prices.
• C)increasing the money supply, which would restore the original price level.
• D)decreasing the money supply, which would restore the original price level.

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Definitions:

Broker Commission

A fee paid to a broker for executing a transaction. It is typically calculated as a percentage of the transaction value.

Differential Income

The increase or decrease in income resulting from a change in business decisions or operations.

Variable Manufacturing Costs

Expenses that change in proportion to the production volume, such as raw materials and direct labor costs.

Differential Effect

The impact of a business decision on the revenue or cost, highlighting the difference between two alternatives.