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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