According to Real Business Cycle Theory, If the Bank of Canada

question 15

Multiple Choice

According to real business cycle theory, if the Bank of Canada increases the quantity of money when real GDP decreases, real GDP

• A)will increase but only temporarily.
• B)will increase permanently.
• C)and the price level will both be unaffected.
• D)will be unaffected, but the price level will rise.
• E)will decrease due to the inefficiencies introduced into production as a result.

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Definitions:

Purely Competitive Conditions

Market situations in which a large number of firms produce identical products, and there is no single seller who can influence the market price.

Profit-maximizing Equilibrium

A state in which a firm achieves the highest possible profit, given its production costs and market conditions.

Appliance Manufacturer

A company that produces electrical machines and devices for domestic use.

Variable Resources

Inputs or factors of production that can be adjusted in the short term to meet changes in the level of output, such as labor and raw materials.