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:

Slope

In mathematics, the measure of the steepness or incline of a line, typically defined as the ratio of the vertical change to the horizontal change between two points on the line.

Y-axis

The vertical line on a graph, typically representing the dependent variable in a two-dimensional coordinate system.

X-axis

A horizontal line that typically represents independent variables or data points in a two-dimensional graph.

Positive Relationship

A correlation where an increase in one variable is associated with an increase in another variable.