Suppose the Economy Is Initially in Short-Run Equilibrium and the Bank

question 90

Multiple Choice

Suppose the economy is initially in short-run equilibrium and the Bank of Canada decreases the nominal money supply.If the price level remains constant,real GDP will ________ relative to potential GDP and the real interest rate will ________.

• A) increase; increase
• B) increase; decrease
• C) decrease; increase
• D) decrease; decrease

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Definitions:

Market Power

The ability of a firm or group of firms to influence the price and production levels of a product or service in the market.

Market Failure

A scenario where the distribution of goods and services by an unregulated market fails to be effective, frequently causing a decrease in overall social welfare.

Communist Countries

Nations where the government controls most forms of economic activity and property is commonly owned.

Scarce Resources

Scarce resources are resources that are limited in availability and cannot satisfy all the wants and needs of an economy or population.