Table 11.2 -Refer to Table 11.2.The Hypothetical Information in the Table Shows

question 192

Essay

Table 11.2
-Refer to Table 11.2.The hypothetical information in the table shows what the values for real GDP and the price level will be in 2011 if the Bank of Canada does not use monetary policy:
a.If the Bank of Canada wants to keep real GDP at its potential level in 2011, should it use an expansionary policy or a contractionary policy? Should the trading desk buy c bonds or sell them?
b.Suppose the Bank of Canada's policy is successful in keeping real GDP at its potential level in 2011.State whether each of the following will be higher or lower than if the Bank of Canada had taken no action:
(i)Real GDP
(ii)Full-employment real GDP
(iii)The inflation rate
(iv)The unemployment rate
c.Draw an aggregate demand and aggregate supply graph to illustrate your answer.Be sure that your graph contains LRAS curves for 2010 and 2011; SRAS curves 2010 and 2011; AD curve for 2010 and 2011, with and without monetary policy actions; and equilibrium real GDP and the price level in 2011 with and without policy.