Assume the Economy Is Initially in Equilibrium Where Potential GDP

question 74

Multiple Choice

Assume the economy is initially in equilibrium where potential GDP equals real GDP.If the expected inflation rate,the term structure effect,and the default-risk premium are constant and the Bank of Canada wants to ________ the inflation rate,the Bank of Canada could lower the target short-term nominal interest rate,which will result in an output gap which is ________.

• A) raise; greater than zero
• B) raise; less than zero
• C) lower; greater than zero
• D) lower; less than zero

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Definitions:

LIFO Reserve

The difference between the cost of inventory calculated under the Last-In, First-Out (LIFO) method and its cost calculated under the First-In, First-Out (FIFO) method.

Historical Cost

The original monetary value of an asset or investment at the time of its purchase, disregarding inflation over time.

Accounting Principle

Guidelines and standards intended to bring consistency and integrity to the financial reporting process.

Cost Or Market

An inventory valuation method that requires inventory to be recorded at the lower of its historical cost or its current market value.